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The For Real Estate Investment Trust Video

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What is a Real Estate Investment Trust (REIT)?

Take the first step towards building real wealth by signing up for our comprehensive guide to real estate investing. Real estate investment trusts, or REITs, can be fantastic ways to add both growth and income to your overall portfolio, while adding diversification at the same time.

A real estate investment trust, or REIT pronounced reetis a unique type of company that allows investors to pool their money to invest in real estate assets. Although this is an oversimplification, you can think of a REIT like a mutual fund for real estate. Hundreds or thousands of investors buy shares and contribute money Tbe a pool, and professional managers decide how to invest it.

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For example, could you go out and buy a high-rise office tower or shopping mall? Could you buy a portfolio of mortgages, or would you even know how to go about doing this? Probably not.

However, REITs allow you to put your money to work in these ways. You can even gain exposure to billion-dollar commercial property portfolios with just a few hundred dollars to start. There are some specific requirements that must be met, including:.

How does a company become a REIT?

As you can see, there are some pretty strict requirements that Esrate be met in order for a company to be classified as a REIT. So why would any real estate company want to go through the trouble? Specifically, REITs are not treated as ordinary corporations for tax purposes. If a company qualifies as a REIT, it will pay no corporate tax whatsoever source, no matter how much profit it earns. Because REITs are required to pay out most of their income, they are treated as pass-through entities and are only taxable at the individual level.

With most dividend-paying companies, profits are effectively taxed twice. Then, when the profits are paid out as dividends to shareholders, they are subject to dividend taxes at the individual level.]