REIT is an acronym for a real estate investment trust.? The advantage to the investor in a REIT is the source of income it provides.? Specifically, due to the structure of the REIT it does not accrue corporate tax, instead it returns all of the taxable income to investors.? Although the REIT structure avoids double taxation to shareholders, tax losses cannot be passed through.? The investor receives a 1099 form for tax purposes and it is therefore taxed like additional income.
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There are three types of REITS.
- An Equity REIT is a corporation that purchases, owns and manages real estate properties; it does not own or originate real estate loans. It may also develop properties.
- ?A Mortgage REIT is a corporation that purchases, owns and manages real estate loans; it does not own real estate properties. It may or may not originate commercial and/or residential loans.
- ?A Hybrid REIT is a corporation that purchases, owns and manages both real estate loans and real estate properties. It has the qualities of both an equity and mortgage REIT which is why it is referred to as a hybrid.
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The overall purpose of the REIT envisioned by the U.S. Congress was to provide a means for investors and in turn the developers of real estate to mutually benefit from growth.? It places the average investor in a position of being a big player with the benefit of a share of the profits. A small investment in a REIT can enhance a portfolio of stocks and bonds. Each investment dollar goes into enhancing or creating the availability of funds for building more equity and income into the REIT.
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Due to the nature of the REIT, it must be organized and structured according to strict guidelines. The SEC guidelines apply to those REITS public traded on the New York Stock Exchange and governs those REITS listed with the exchange. Privately held REITS must comply with IRS standards and other state and federal laws pertaining to trusts.
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The REIT can be designed to fit almost any scenario available in the real property world. It can play the upside and the downside and provide hybrid type coverage.? Primarily the REIT is composed of commercial property including shopping malls, apartment complexes and income producing properties. It can also be packaged with residential real estate of any type so long as it is also income producing.
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The REIT has seen increased interest recently investors because it provides stable income along with a solid compliment to their portfolio of stocks and bonds. Because of the intricacies of the real estate market and commercial property in particular? investors should consult with a qualified REIT broker or investment advisor before jumping into the market.? Lists of REITs are available through Morningstar or may be reviewed on-line at the National Institute of Real Estate Investment Trusts.? You can also normally get a list of REIT?s in your area from your State Comptroller?s office.
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The current concerns about real estate mortgages defaulting and a slow down in United States real estate markets does not mean the REIT investment is in jeopardy.? Hybrid REITS afford the investor security in good times along with troubling areas of the market.? It should also be remembered that REITs are available for nearly all of the worlds real estate markets. In many parts of the world, specifically China, Asia, Europe and Dubai, the real estate markets in both commercial and residential income producing properties are booming.
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The REIT is an investment that any investor should consider and review the merits of with a trusted financial planner with expertise in the REIT market world wide.
Source: http://www.realtybizconsulting.com/2012/07/31/what-is-a-reit-and-is-it-for-you/
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