In: Categories » Legal and finance » Real estate » REAL ESTATE INVESTMENT TRUSTS
|
Real estate investment trusts, or REITs, are corporations or business trusts that meet federal tax law requirements to be a REIT. They function like closed-end mutual funds. REITs generally invest in real estate and offer their investors marketability, centralized management, limited liability, and continuity of interests. Plus, REITs can avoid corporate income tax because they pass their earnings along to their shareholders. The distributions are taxed as ordinary income to the shareholder. However, they cannot pass along their losses. The type of real estate behind a REIT can vary considerably between the different issuing companies. For instance, one REIT may hold the property of hotels, while another may hold restaurants. REITs may also differ in size and origin. While some REITs may be a mix of different types of real estate, some specialize in particular kinds. Many REITs are traded on organized stock exchanges, and therefore, will be followed and evaluated by independent researchers and firms. There are some that aren’t publicly traded, and aren’t independently evaluated. When you purchase shares of a REIT that isn’t publicly traded, there is almost no secondary market for the shares, which may result in you selling your shares at a possibly reduced rate, sometimes dramatically reduced, depending upon the buyer. While last year proved to be a poor year for stocks and mutual funds, it was a good year for REITs. Many mutual funds were struggling just to break even, but depending on which index you looked at, REITs were pulling in a total return in the mid-20-percent range. Plus, the dividend yield for many REITs last year was around 11 percent. That’s a far cry from the stocks and mutual funds that most people were invested in. Rather than lose money last year on their investments, my clients who were invested in REITs saw that segment of their portfolios make money. Three different types of REITs exist: equity, mortgage, and hybrid. Equity REITs get their income from rents and capital gains from the property they own. Mortgage REITs derive their income primarily from the interest income from mortgage loans they enter into. Hybrid REITs are combinations of the equity and mortgage REITs. There are other ways to invest in real estate, including buying and developing land, purchasing rental properties, limited partnerships, etc. However, I usually advise my clients to invest in REITs, when it is appropriate. I feel that the centralized management and the passthrough of income, which has been as high as 11 percent, outweigh the possible advantages of direct ownership. It’s important to note that although the income that is distributed by the REIT to its shareholders is taxable to the shareholders, it’s not when the REIT is held in a qualified retirement plan (like an IRA) and reinvested. This is because the interest can flow into a separate account. However, if the qualified plan owner decides to take the interest payments as income, they will be taxed.
|
legal disclaimer
1) Our website is not responsible for the information contained by this article as well for any and all copyright infringements by authors and writers. E-articles is a free information resource. If you suspect this article for any copyright infringements, please read the Terms of service and contact us to investigate the problem.
2) The E-articles directory team is not responsible for inaccuracies, falsehoods, or any other types of misinformation this tutorial may contain and will not be liable for any loss or damage suffered by a user through the user's reliance on the information gained here. Please read the Terms of service
Useful tools and features
If you like this article (tutorial), please link to it from your web page using the information above. Linking to this page, this is the only way to help us improve our service, the same time providing your visitors with a way to improve their online experience.
related articles
I’ve heard many people say that by establishing a trust, you will eliminate any estate taxes due. That is a false statement. However, trusts do simplify the transfer of your assets to your heirs, as well as establish whatever guidelines you want. For example, if you want to leave your grandchildren each a sizable amount of money, but believe that they will be too young to manage the money by themselves, you can put the money into trust where it can stay until they are old enough (which is an age that you determine). Or, you can ensure...
2. WHAT ARE ESTATE PLANNING TAXES AND LIVING WILLS
Minimizing estate taxes and transfer costs while providing the greatest possible financial security for your heirs and beneficiaries defines estate planning. This is a very goal-oriented portion of financial planning. One of the main challenges for estate planning is to achieve a high standard of living in your retirement plus preserving as much of your assets as possible to pass on to the next generation. As part of the inheritance maximization, estate planning tries to minimize the amount of estate taxes your beneficiaries ...
3. ESTATE PLANNING FOR UNMARRIED AND GAY AND LESBIAN COUPLES
Estate planning has not to be analyzed from the point of view of a married couple only. Unmarried or gay and lesbian couples can benefit of the same kind of estate planning. In fact, the opposite is true. Estate planning becomes even more important if you aren’t married, but share your life with someone. Both unmarried straight and gay couples don’t benefit from the same protection under the law that married couples do. First, when you die, your property will pass to others in one of four ways: • auto...
4. Is this my property (q)
We’ve all come across it. The tenant moves out and you are confronted with a place that you don’t recognise as yours. The walls are scuffed the appliances are dirty and the laminate floor looks as if the tenants have been having salsa parties every weekend. Your pristine apartment is looking decidedly dishevelled and you get the feeling that this is not right. What can you do about it? Starting point for action Firstly, you of course have should have taken a deposit. If the tenancy was pre 6th April 2007 th...
5. I love Maisonettes/so should you ~ Confessions of a UK Landlord
I love maisonettes! This may seem extreme sentiment from a hard bitten landlord and investor and I will explain. But first; a maisonette to the uninitiated is ostensibly a flat, with the unusual feature of having its own front door. This building type seems to have descended from no where during the 1960’s and 70’s to inhabit pockets of our urban landscape. The concept I guess arose out the demand for high density small unit accommodation, suitable for a low-rise environment. The result is that they have little or no garden, but in the...
6. Final Rental Payment
Rental period confusion One of the most confusing aspects of letting out a property is calculating the final rent payment. What on the face of it seems a pretty straight forward matter is complicated by the fact that we are still adhering largely to a Roman system of measuring time e.g. the Roman calendar. This quaint system means that we have a series of months of varying lengths from 28 day to 31 days and then just to confuse things even more we even have one month that doesn’t know whether it is 28 or 29 days long! ...
7. Making an offer on a property
At this point it really is important to understand local culture. The French are a fiercely proud race and I have often known a vendor remove his house from the market if an offer is too low. His or her belief is that his pride, his family and his heritage have been offended by such an undervaluing The purchasing process I remember the elderly gentleman who was selling a small farm workers’ cottage, which was part of his large complex of farm buildings. He had marked out a sizeable part of land to go with the cotta...
8. Choosing to Buy Real Estate in Another Area or Overseas
Purchasing property in another part of the country you live in or overseas should not be taken lightly as there are many additional factors to take into account than purchasing a property in your local area. The following is a basic outline process that all prospective buyers of residential or commercial real estate should follow for a property that suits you. Depending on the country you are looking to purchase property in will take you into contact with industry professionals and/or private sellers. Assistance of...
9. Five Super Strategies for First Time Home Buyers
Are you a First Time Home Buyer? No matter where you live, there will always be "First Time Home Buyers", whether you move from another location, just got married, or are single and just starting out on your own. My tips booklet, "31 Super Strategies for Home Buyers & Home Sellers" is just the tip of the iceberg. Listed below are 5 new Super Strategies to help both First Time Buyers and the buyers' agent. 1. Educate yourself When you know what is going to happen, you are less afraid. Have each step of the process ...
10. Five Timely Tips For Selling Your Home
Creating the groundwork for selling your home can be as easy as 1,2,3,4,5. OK- you found a new home, you want to downsize or you want to retire. You need to sell your home- what can you do? Follow these proven tips to selling your home and you will reduce your stress and get your money’s worth. 1. Time is of the Essence! A timeline is very essential because some preparations can take longer and this will help you to determine a date for selling your home. 2. Curb Appeal! Clean up debris in both th...