What is a real estate investment trust?

Author Name
Answered by: Willie, An Expert in the Investing in Real Estate Category
A real estate investment trust, or REIT is a an entity—such as a corporation or trust—established to invest in income-producing commercial and residential properties. A REIT’s advantage lies in the elimination of corporate income tax. Instead, the real estate investment trust functions as a “pass-through” entity for taxation purposes. According to current IRS rules, ninety percent of the income produced by the real estate investment trust must be distributed to its shareholders, who in turn pay any taxes due on their individual returns.

A real estate investment trust has a board of directors or trustee(s) to oversee its day-to-day operations and make business decisions. The IRS requires the REIT to make the majority of its income from real estate holdings in order to maintain its unique “pass-through” privileges. Many of these trusts also finance real estate by making loans, especially higher-interest rate, higher risk loans known as “hard money.” Some estate investment trusts manage the properties they own, while others elect to secure the services of outside management companies to maintain their properties.

The benefits of the REIT structure are many. When an individual puts his assets into a real estate investment trust, he might be shielded from personal liability to large degree in the event of a lawsuit. Also, investors in the trust that wish to offload their real estate holdings can simply sell their shares and walk away rather than go through the arduous and lengthy process of listing and marketing a property through a real estate broker.

Author Name Like My Writing? Hire Me to Write For You!

Related Questions