A Real Estate Investment Trust (“REIT”) is a company that primarily owns, and in some cases, operates income-producing real estate such as apartments, offices, or industrial buildings. The United States Congress created REITs in 1960 to make investments in large, income-producing real estate accessible to average investors
REITs are permitted to deduct dividends paid to its shareholders from its corporate taxable income. So, REITs that pay out at least 90 percent of its income to its shareholders generally pay no corporate tax. Taxes are paid by the shareholders on the dividends they receive.
To qualify as a REIT, a company must derive most of its income from real estate investments and distribute at least 90 percent of its income to its shareholders each year. As a result, REITs often time carry higher dividend yields than many dividend paying stocks and US Government bonds.
REITs allow multiple individual investors to pool their money and purchase real estate they might not otherwise be able to purchase as individuals. REITs offer individual investors the distinct advantages of portfolio diversification, strong dividends, and long-term performance.
There are two types of REITs, private and public. Private REITs are not regulated and are not required to file with the SEC. As a result, there is very little public information available about their structure or holdings. Public REITs are required to make regular financial disclosures, including annual audited financials, to the SEC and investment community. As a result, they are considered more transparent than their Private counterparts.