Real Estate Investment Trust

Funds that trade in the secondary market and invests in real estate are known as REITs. Real Estate Investment Trust securities are managed and trade on an exchange or Over the Counter (OTC).

A REIT will invest in Real Estate, Mortgages and other loans. The investor gets diversification, management and liquidity.

A trust is organized as a legal entity under a trust indenture. The trust issues shares of benefecial interest representing an undivided interest in the pool of real estate investments.

Real Estate Investment Trusts that invest mainly in properties are known as Equity REITs.

The net income from the properties should exceed the borrowing cost for the fund.

An Equity Real estate investment trust is not highly leveraged becuase the amount of debt carried is based solely upon net income from the properties.

These trusts invest mainly in mortgages and construction loans. The interest rate earned on the mortgages and construction loans should exceed the REITs borrowing costs.

REITs are regulated by the IRS (Subchapter M) and does not pay tax on the distribution of income to shareholders. To qualify for this exemption:

2. At least 75% of the funds assets must be invested in real estate, government securites, or cash.

3. The Real Estate Investment Trust must be non-incorporated and managed by one or more trustees.

4. At least 90% of the net investment income of the trust must be distributed to the shareholders. The REIT does not have to pay taxes on this distributed amount.

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.K. Lasser Pro Real Estate Investment Trusts thoroughly explains the nature of REITs and explores how this investment vehicle can be integrated and implemented into almost any client’s portfolio. This invaluable resource discusses the benefits and performance characteristics of REITs and includes a chapter on each of the following forms of REITs available.