Sarasota County Bar Association
Manatee Chamber of Comerce

Real Estate Investment Trusts

A Real Estate Investment Trust (REIT) provides a way to invest in real estate and mortgages, while maintaining liquidity. REITs are traded on exchanges. They get tax advantages and offer high yields.

As an investment, REITs are similar to mutual funds. Any level investor can buy into the real estate market through a REIT.

REITs have special rules:

  • REITs must have at least 100 investors
  • No five investors can hold more than 50% of the REIT
  • At least 75% of their assets must be in real estate, Cash, or US treasurys
  • 75% of income must come from real estate

So, the tax advantage goes to the REIT. They have to maintain high dividend payout ratios (90%). They get to deduct the dividends from their taxes, virtually eliminating tax liabilities for the REIT. As an investor, you must claim any profits or losses on your personal tax return.

Types of US REITs
  1. Mortgage REITs invest in mortgages. These are influenced by interest rate increases, and the economy.
  2. Equity REITs actually invest in owning properties. Most of their revenue comes from leasing to tenants. Most REITs in the US are Equity REITs.
  3. There are Hybrid REITs that invest in mortgages and property.
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