What Is A REIT?

If you are looking into investing in real estate, you may have heard the abbreviation, “REIT”. This is something every real estate investor should be aware of. A REIT, according to the U.S. Securities and Exchange Commission, is a real estate investment trust and is a company that owns, operates, or finances income-producing real estate.

About REITs

Congress established REITs in 1960. They were established as an amendment to the Cigar Excise Tax Extension of 1960. They allow investors to gain ownership in commercial real estate and operate in a similar manner to mutual funds.

Examples of commercial real estate portfolios that qualify are:

  • Apartment complexes
  • Hospitals
  • Office buildings
  • Warehouses
  • Shopping malls
  • Hotels

REIT Guidelines

  • Must invest at least 75% of its total assets in cash, real estate, or U.S. Treasuries – according to Investopedia
  • Receive a minimum of 75% of its gross income from rents from real property, sales of real estate, etc.
  • Must pay a minimum of 90% percent of taxable income in the form of shareholder dividends each year
  • Be managed by a board of directors or trustees
  • Be an entity that is taxable as a corporation
  • Have a minimum of 100 shareholders
  • Have no more than 50% of its shares held by five or fewer individuals

The Usual REIT Categories

  • Equity REITs
  • Mortgage
  • Hybrid REITs

How Can You Invest?

You can invest in REITs by investing in a mutual fund that specializes in real estate or by purchasing shares directly on an open exchange. Some REITs are private and others are public.

Also, you can invest specifically in one area of real estate or in one specific country, state, or region. You can also diversify your investments.

For more information, please call (800) 236-6519.

Author

Engineered Tax Services

Engineered Tax Services

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