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Real estate investment trust

From Wikipedia, the free encyclopedia


A Real Estate Investment Trust or REIT (pronounced /ˈriːt/) is a tax designation for a corporation investing in real estate that reduces or eliminates corporate income taxes. In return, REITs are required to distribute 90% of their income, which may be taxable in the hands of the investors. The REIT structure was designed to provide a similar structure for investment in real estate as mutual funds provide for investment in stocks.

Like other corporations, REITs can be publicly or privately held. Public REITs may be listed on public stock exchanges like shares of common stock in other firms.

REITs can be classified as equity, mortgage or hybrid.

The key statistics to look at in REIT are its NAV (Net Asset Value), AFFO (Adjusted Funds From Operations) and CAD (Cash Available for Distribution).


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United States REITs

See also: List of public REITs in the United States

In the U.S., REITs generally pay little or no federal income tax, but are subject to a number of special requirements set forth in the Internal Revenue Code, one of which is the requirement to annually distribute at least 90% of its taxable income in the form of dividends to its shareholders.



In order to qualify for the advantages of being a pass-through entity for U.S. corporate income tax, a REIT must:

  • Be structured as corporation, trust, or association[4]
  • Be managed by a board of directors or trustees[5]
  • Have transferable shares or transferable certificates of interest[6]
  • Otherwise be taxable as a domestic corporation[7]
  • Not be a financial institution or an insurance company[8]
  • Be jointly owned by 100 persons or more[9]
  • Have 95 percent of its income derived from dividends, interest, and property income[10]
  • Pay dividends of at least 90% of REIT's taxable income
  • No more than 50% of the shares can be held by five or fewer individuals during the last half of each taxable year
  • At least 75% of total investment assets must be in real estate
  • Derive at least 75% of gross income from rents or mortgage interest
  • Have no more than 20% of its assets consist of stocks in taxable REIT subsidiaries.


Trends and Statistics

In recent practice, many REITs distribute all of or even more than their current earnings, often resulting in dividend yields comparable to bond yields. If an investment company such as a REIT distributes more than its taxable income, the excess distribution is considered "return of capital" for tax purposes (not taxed as ordinary income, but first reduces basis in REIT stock; if this brings the basis to zero, then remaining amount of the return on capital is taxed at capital gain rates). The distribution requirement may hamper a REIT's ability to retain earnings and generate growth from internal resources. This and other restrictions imposed by the Internal Revenue Code generally limit a REIT's suitability for growth-oriented investors. However, other considerations may result in potential for stock price appreciation, such as improvements in the REITs underlying leasing markets, changes in interest rates or increasing demand for REIT stocks.

As of early 2005, there were nearly 200 publicly traded REITs operating in the United States. Their assets included a combined $500 billion, and approximately two-thirds of them were trading on national stock exchanges. The number of REITs not registered with the Securities Exchange Commission and not publicly traded is about 800.[1]

Comments (5)

Frank Schulte-Ladbeck
Frank Schulte-Ladbeck Professional Real Estate Inspections - Houston, TX
I have long been a believer in REITS, and your post is a good introduction to the topic. The thing that I would add is that you can find a REIT that specializes in certain areas, such as hotels, hospitals, or office buildings. Many firms deal with international real estate, so their portfolio withstands shocks from some local condition.Investors should look at this option.
Dec 15, 2007 09:58 PM
Frank great suggestion.....
Hey Frank thanks for your comment your make a very good point I think I will cont. with this theme alone with my foreclosure information to expand on this topic.
Dec 16, 2007 05:51 AM
Scot Rife
Centerville, OH

I can't wait for the next Robert Pina blog post!

Jan 28, 2012 01:10 AM
Paul Gapski
Berkshire Hathaway / Prudential Ca Realty - El Cajon, CA
619-504-8999,#1 Resource SD Relo

Thank you for sharing your blog; we need Real estate Professionals to share their comments and information regarding their markets and experiences. Thanks again from beautiful Sunny San Diego!

Jun 03, 2012 04:34 PM
Tina Howard
Home-Arizona - Phoenix, AZ
Real Estate Investor

Hi There, Great Post. Do you know of any REITs investing in commercial office space? Particularly in Middletown, OH?

Aug 28, 2015 08:08 AM