REIT - What You Need To Know - Part 2

2006-09-25

Back to Part 1 of REIT - What You Need To Know

The average investor also enjoys the benefits from investing in REITs without the complications of a very huge capital and labor requirements. A REIT must be coming from a company structured as corporation, business trust or its equivalent. The company has to be managed by a board of directors or trustees. Its shares need to be fully transferable and should have 100 shareholders at a minimum. They pay dividends of at least 90% of REIT's taxable income. The company should have no more than 50% of the shares held by five or fewer individuals during the last half of each taxable year. A minimum of 75% of total investment assets must be in real estate and should derive at least 75% of gross income coming from rents or mortgage interest.

The most important and notable advantage of REIT is the ability to distribute up to 90% of the company’s annual taxable income. This is made possible by producing real estate properties to buyers and shareholders. This amount is actually deductible on a corporate level and is taxed on a personal level. Therefore, the taxation level enables a higher distribution pay to investors. This simply means that REIT investors greatly contribute to the profitability of management and property within the trust. Compared to the common stock ownership, REIT offers more than just having an equal share, without owning more benefits of higher distribution. It still needs the approval of the board whether or not this cash excess is awarded to the investors.

Recently, REITs enjoy more than the distribution of current earnings and results in dividend yields exceedingly comparable to simple or extravagant bond yields. Once again, having this investment in form of a REIT an investor gains more than its taxable income. This excess distribution is regarded as a return of capital for tax purposes as mentioned.

Individuals can become a REIT shareholder by purchasing directly on an open exchange or through investing in a mutual fund that particularly specializes in public real estate. Dividend reinvestment plans or DRIPs is an additional benefit that follows investment in REITs. Equity REITs means investing and owning properties, which naturally implies the responsibility regarding the equity or value of the actual real estate assets. Mortgage REITs means owning the property mortgages, loaning money for mortgages to other owners of real estate or buying exiting mortgages and secured ones as well. This kind generates profit mainly from the interest of the loans made. Hybrid REITs are combined Equity and Mortgage REITs, of course, by putting money on both investments.

Related Articles:
» Making Your Offer to Motivated Sellers
» Investing in Single Family Homes
» How You Can Use Real Estate To Fund Your Retirement

Copyright 2006 Finance News Today. Articles can not be copied, reproduced or redistributed without written permission from Finance News Today. To request reprint permission please email us at info@financenewstoday.com