A Primer on REITS

Written by Mike Auger,  Shepherd Financial Partners.

Real Estate Investment Trusts (REITs) represent an opportunity to receive the returns associated with investing in real estate programs – income and capital appreciation – with the added benefit of professional management. REITs add diversification and may be a source of income for an investment portfolio. Here are some of the basics of REITs.

The Basics of REITs:

 What is a REIT?

      • An investment vehicle that owns, and in most cases operates and manages a portfolio of income-producing real estate assets.
      • Congress created REITS in 1960 in order to make investments in large scale, income-producing Real Estate accessible to the average individual investor.[1]
      • REITs provide all levels of Investors with income streams, portfolio diversification, and the potential for long-term capital appreciation.
      • To be considered a REIT an entity must:[2]
      • Invest at least 75% of total assets in real estate.
      • Derive at least 75% of gross income from real estate related sources such as rental payments, mortgage interest, or financing of real property.
      • Pay at least 90% of its taxable income as dividends to shareholders annually.
      • Be taxable as a corporation.
      • Be managed by Board of Directors or Trustees.
      • Have a minimum of 100 shareholders, with no more than 50% of its shares held by 5 or fewer individuals. – (During the last half of the taxable year)
      • REITs can be industry specific
        • Most REITs invest in industry specific real estate programs including but not limited to:
          • Hospitals/Medical office space, Hotels, Industrial Facilities, Infrastructure, senior living, retail space, and data entry centers.

To read more about how REITs work, download our white paper, A Primer on REITS here.

[1] “Welcome to Market Realist.” Why Did REITs Come into Existence? N.p., n.d. Web. 25 June 2016.

[2] “Real Estate Investment Trusts (REITs).” Investor.gov. N.p., n.d. Web. 11 July 2016.