Established September 14, 1960, the United States real estate investment trust industry is a robust section of the marketplace. A real estate investment trust (REIT) is a special entity that combines real estate investing with traditional stock market trading. The REIT company is set up with special tax considerations. The company is basically in place to manage REIT that produce income. Investing in this type of investment trust is primarily just like investing in the stock market. The investor buys shares of the REIT on the market. In fact, $4 billion in REIT stock is traded each day in the United States.
To qualify for significant tax benefits, the REIT company must keep the vast majority of its assets and income involved in the investing. Ninety percent of the taxable income must be distributed to its shareholders once a year as dividends. The REIT company does not have to count the money paid as dividends to its shareholders when calculating corporate income tax. In the last fifty years, many REIT companies choose to return one hundred percent of corporate income to the investors so they do not have to pay any corporate income tax. Shareholders receiving dividends from investing in REIT companies pay the taxes and capital gains on the money.
REIT structure makes investing in real estate possible for a wider array of people. Traditional investment typically requires a large amount of capital. Investing in REIT companies breaks down the capital cost per individual, making this a more accessible investment vehicle. This method also gives this kind of investing a higher level of liquidity than traditional direct investment structures.
Investing in real REIT can be a great way to get started in this type of investing for beginners and those who want minimal involvement. However, serious investors might consider forming a REIT themselves. The company must be set up in line with governmental regulations in order to receive the corporate tax benefits that make it an attractive company structure. REIT’s can be diversified or specialized. Many specialize in a specific kind of commercial real estate, such as office spaces, apartment buildings, or shopping malls. Leveraging your experiences in real estate investing when choosing a specialty for your real estate investment trust is a smart practice.