Investing in Real Estate Investment Trusts (REITs)

A Real Estate Investment Trust (REIT) is an investment vehicle where a corporation is formed to investment in various types of real estate such as office buildings, shopping centers, hotels, or other types of real estate related assets. REITs enable their investors to directly participate in the ownership or funding of real estate ventures while enjoying significant tax advantages.

Types of REITs

REITs can be generally divided into three types:

Equity REITS: Seek to make money for investors through rents collected via real estate ownership. This is the most common type of REIT.

Mortgage REITS: Set up to provide financing to the owners and developers of real estate. They may also invest in financial instruments that are backed by real estate mortgages.

Hybrid REITS: Hybrids offer a combination of equity and mortgage characteristics.

Benefits of REIT Investing

The benefits of investing in REITs can include:

Professional Management: REITs are professionally managed, enabling investors to leverage the expertise outside of their own skill set.

High Yield: Most investors in REITs are looking for income. REITs are known to deliver high annual yields, often up to 7%.

Avoiding Double Taxation: Tax advantages allow for greater returns.

Liquidity: Unlike real estate investment, REITs offer investors the opportunity to sell the security fairly quickly should the need to liquidate the investment arise.

REIT Requirements

To qualify as an REIT and enjoy the tax benefits, the organization must be managed by a board of directors and offer fully transferable shares. The REIT must distribute at least 90% of its taxable income to its investors annually and invest at least 75% of its assets in real estate. An REIT is also required to produce a minimum of 75% of its gross income from mortgage or property investing.
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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