What is a REIT?

By Preston Ames

What is a REIT?

A REIT is a real estate investment trust. REITs own and finance rental properties. Properties can be apartments and commercial spaces. They make income off of the rents.  The stocks trade like mutual funds and they produce dividend income for investors.

There are a few types of REITS. A equity REIT is a real estate investment fund that makes money on the rental income derived from the investment. A mortgage backed REIT is an investment vehicle that is invested on the mortgage of the properties in the REIT. A hybrid REIT is a REIT that is both an equity REIT and a mortgage REIT.

How does the REIT Investment work?

A REIT pays 90% of its income to the shareholders. The dividends that investors get are taxed as ordinary gains, capital gains, and return on capital. This can be advantageous given the investors tax bracket. The income that is given to the shareholders is not taxed to the REIT.

How does the REIT make money?

A REIT creates money on the rental income that it derives form the properties. The rental income is treated as business in come to the REIT.

Why would an investor choose a REIT?

The diversification the portfolio is great for many investors. The tax advantages from the earned dividend income can be advantageous. This does depend on the tax bracket the investor is in. The historical yields have been favorable in REIT.

Preston Ames has an MBA from Cal Lutheran. He has worked as an auctioneer for 6 years and worked as a marketing agent under a real estate broker. He has a certificate in Financial Planning from UCLA and also graduated from the Yale school of management CIMA certification program. His main areas of expertise are marketing, Finance, and Business