What Is A REIT?

REIT is the abbreviation for real-estate investment trust. Revenues derived from rent and other fees comprise the dividends given to stockholders who have invested in property-investment companies. In an odd twist of fate, REITs tend to correspond negatively with the fluctuations of the stock market; that is, REITs seem to zig when the NASDAQ Composite Index zags. Since the beginning of the bear market some ten years ago, REITs have flourished, but they were dealt quite a blow in the late 1990s.

In 1960, Congress launched REITs, offering small investors the opportunity to invest in profit-producing properties. Outside of the USA, REITs are also well known in Australia, Japan and Brazil. Different countries have different laws governing the REIT including other real estate investment vehicles.

REITs have their appeal among individual real estate investors as they offer the most direct way to buying property, eliminating some of the expense and difficulty that is often otherwise unnecessary. Federal tax exemptions for dividends are available with REITs provided at least 90% of taxable revenue is distributed to investors every year. REITs offer predictability in an unpredictable market and dividends can amass 8 to 9 % per year.

Originally, these trusts were designed to provide a similar investment structure as that provided by mutual funds. Each shareholder is entitled to a prorated percentage of profits. All the major stock exchanges have the stocks of many REITs. Dividends can be deducted from taxable corporate income via REITs. Capital gains and any taxes involving dividends received must be reported by an individual investor.

Last year, about 170 public REITs held more than $300 billion US dollars. Often, these trusts focus on one particular kind of property, such as residential or commercial. Handling the upkeep and management of the properties within their portfolios is the function of some REITs, but there are some who do not get involved with these services and hire contractors to do them.

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