Notice: Function _load_textdomain_just_in_time was called incorrectly. Translation loading for the armember-membership domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home1/wanrru6iyyto/public_html/wp-includes/functions.php on line 6114

Notice: Function _load_textdomain_just_in_time was called incorrectly. Translation loading for the ARMember domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home1/wanrru6iyyto/public_html/wp-includes/functions.php on line 6114
Real Estate Investment Trusts – REITs - ValueInvestingNow.com
By /

Real Estate Investment Trusts – REITs

Real Estate Investment Trusts are corporations, trusts or associations that act as agencies in real estate and associated mortgages. This is a specialized tax segment and it requires recognition by the Internal Revenue Service to operate as a Real Estate Investment Trust (REIT). In general, the REIT pays little to no income taxes and acts very similar to a pass-through entity for tax purposes. All REITs must comply with Code Section 856 which addresses compliance for this privileged tax advantage. Typically, REITs file Form 1120-REIT for tax purposes. 

A secondary advantage for REIT status is the ability to raise capital via syndication.  Section 856(a) and (b) require a minimum of 100 shareholders or owners of interest in the business entity. This allows for a more advantageous management situation by having a more formal elected board of trustees or directors.  In addition, it allows for greater ease of transfer of ownership with the respective investors. 

To fully appreciate the Real Estate Investment Trust, you should become acquainted with the history behind REITs. From there, there are unique advantages associated with REITs and an investment in one. As with all business situations, there are some disadvantages and you should be aware of them. The following sections cover these three topics and I’ll finish off with my own conclusion. 

REITs– History 

Code Section 856 was signed into law in 1960 by President Eisenhower. It was designed to bring about the benefits of owning stock and orienting capital towards the passive investment in real estate. Three of the original REITs trade on the New York Stock Exchange today. They are Winthrop Realty Trust (FUR), Pennsylvania REIT (PEI) and Washington REIT (WRE). 54 years later, there are over 160 REITs traded on the NYSE. In addition there are over 14 REITs in the S&P 500. 

There are two types of REITs, Equity Based and Mortgage Based. Equity based REITs own, operate and often sell properties. Property types include apartment complexes, office complexes, light commercial facilities such as shopping centers and medical complexes. In addition, properties can include nursing homes, hotels/motels and student housing. Unlike Equity based REITs, Mortgage based REITs hold mortgages on the same types of properties.  It is estimated that all REITs in the United States own over $400 Billion in assets. Worldwide, the estimated asset value is in excess of $1 Trillion. 

REITs – Advantages 

The primary advantage of a Real Estate Investment Trust is the tax savings.

Scroll to Top