REIT

Quick Summary of REIT

Real Estate Investment Trusts or REITs are a specialized form of equity that allow investors to own a portion of a group of real estate properties, although many investors think of them as an alternative to bonds.

Granted special tax status by the Internal Revenue Service, REITs pay out at least 90% of their earnings in the form of dividends to shareholders, often offering healthy dividend yields of the same magnitude as bonds. Furthermore, as REITs acquire more property and increase the value of the properties they own, the value of the equity may increase as well, providing a more attractive total return.

The abbreviation REIT stands for Real Estate Investment Trust.

A REIT is a corporation or trust that buys and manages shares in a real estate portfolio, direct real estate or real estate loans. A REIT that buys and manages income properties is known as an equity REIT, while a REIT that purchases mortgage loans is referred to as a mortgage REIT. Often an equity REIT will invest in apartments, retail shopping centers and commercial office buildings. Like other companies, a REIT often trades on a major stock exchange. The pooled capital of many investors is used to buy assets under the REIT. In turn, the REIT earns profits for its shareholders through rents and capital gains. Certain tax advantages are offered to a REIT, dictated by applicable federal and state laws and procedures. For example, a REIT may bypass corporate income tax if it distributes at least 95% of its taxable income to shareholders annually. A REIT is usually managed by one or more trustees, who hold the title to the assets of the REIT and direct future investments. In general, a REIT can be one of three types: a listed public REIT, an unlisted/non-exchange traded REIT or a private REIT. The United States Congress created the REIT concept in 1960.

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