How Do REITs Work?

Reeth or real estate investment trusts

were created by Congress in 1960 to give

all Americans the opportunity to benefit

from investing in income-producing real

estate REITs allow anyone to own or

finance properties in the same way

shareholders benefit by owning stocks

and other corporations the stockholders

of a read earn a share of the income

produced through real estate investment

without actually having to go out and

buy or Finance property this video

provides some insight into what REITs

are and how they work the REIT industry

has a diverse profile which offers many

benefits REITs

often are classified in one of two

categories equity REITs or mortgage

REITs equity REITs owned a wide range of

property types including offices

shopping centers hotels apartments and

much more equity REITs derive most of

their revenue from rent on those

properties mortgage rates may finance

both residential and commercial

properties mortgage REITs get most of

their revenue from interest earned on

their investments in mortgages or

mortgage-backed securities in addition

REITs may be publicly registered with

the SEC and have their shares listed and

traded on major stock exchanges or they

may be publicly registered with the SEC

but not have their shares listed or

traded on major stock exchanges or they

may be private companies not registered

with the SEC and not listed or traded on

a stock exchange regardless of the type

REITs operate under a specific set of

rules established by Congress a REIT is

an entity that is modeled after mutual

funds is treated by the Internal Revenue

Code as a corporation must be widely

held by shareholders must primarily own

or finance real estate

and must own its real estate with a

long-term investment horizon the IRS

implements the REIT rules and oversees

what qualifies as a read the Internal

Revenue Code requires a REIT to adhere

to the following essential rules at

least 75% of the Corporations income

must be earned from real estate as rent

real estate interest or from the sales

of real estate assets at least 75% of

the Corporations assets must be real

estate assets at least 95 percent of

income must be passive REITs are

required to distribute at least 90

percent of taxable income annually to

shareholders as taxable dividends in

other words a week cannot retain its

earnings like a mutual fund a reap

receives a dividends paid deduction

so no tax is paid at the entity level if

100 percent of income is distributed

reach shareholders pay taxes on

dividends at ordinary rates versus the

lower qualified rate the top ordinary

rate is now thirty nine point six

percent over time REITs and the rules

and regulations that govern them have

evolved to meet the changing needs of

the real estate industry and the broader

economy but throughout that process

REITs have remained true to the mission

laid out by Congress in 1960 to make the

benefits of income producing real estate

accessible to anyone and everyone and

that's still how they work today