Final answer:
The primary source of income for REITs is the leasing of real estate space and collecting rents or, in some cases, earning interest from financing real estate transactions. REITs distribute most of their income as dividends to shareholders, with these dividends derived from real estate income.
Step-by-step explanation:
The primary source of income for real estate investment trusts (REITs) is generally not through making loans to construction companies, despite what some resources might mistakenly suggest. Instead, REITs typically generate income through the management and financing of income-producing real estate. They earn revenue primarily from leasing space and collecting rents on the real estate they own and, to a lesser extent, from the interest they earn on the financing provided for real estate transactions.
REITs are required by law to distribute at least 90% of their taxable income to shareholders annually in the form of dividends, and thus their profits are largely derived from the ongoing revenue streams from rents or mortgage interest, depending on the type of REIT. Therefore, your investments in REITs would generate returns mainly through dividends paid out from the income earned by the REIT on its real estate investments and any capital appreciation in the value of the properties.