#WakeUpWednesday #TMG – What Are REITs and Some of the Benefits They Offer

Now that a lot of our clients have filed their personal and corporate taxes,  I wanted to touch on a common investment vehicle that not enough people are taking advantage of and the benefits it may afford you in the future.
Q. What Is a REIT?

A.  A REIT (Real Estate Investment Trust) is a SEC registered company that offers ownership in a managed pool of real estate which generates income through renting, leasing and selling of property.  This income gets distributed in the form of dividends on a regular basis to owners.  As dividend income, the profits seen by investors are then taxed at lower rate providing an immediate savings and an enticing alternative to investing in traditional stocks.

Q. What Are Some of the Benefits to Investing in a REIT?


  • Risk Diversification 
    • “By investing in a REIT(s), you possess a real stake in the ownership of property via increases and decreases in value. In addition you participate in the income generated by the property. This creates a safety net for investors as they will hold rights to the property underlying the trust while enjoying the benefits of regular income.”
    • “Funds of the trust are pooled together and a greater amount of diversification is acheived as the trust companies are able to grow their portfolio of properties, thus reducing the the effects associated with a single asset.”
  • Lower Your Tax Rate
    • “REITs are looking to distribute 90% of their yearly taxable income, created by income producing real estate, to their shareholders. Should the REIT qualify this amount is tax free on a corporate level and generally taxed at a dividend tax rate on the personal level. So, unlike other investments, there is only one level of taxation for the distributions paid to investors.”
  • Free-up cash (UPREIT)
    • If you own a large revenue generating property, you may be able to pull your real estate into an existing REIT. Conditions of these terms can include selling a portion of the property for cash and a portion for equity interest in the REIT.  This cash then could be used at the owner’s discretion.
Q. As a Hotel and or Property Owner, Is It Possible for Me to Join a REIT?

A.   Many Hotel and Property Owners choose to join a REIT for the reasons stated above and often times the process by which this transaction occurs is through an UPREIT (Umbrella Partnership REIT). Essentially property owners contribute their real estate property in exchange for operating partnership (OP) units that can be converted into REIT shares affording a hotel owner the same benefits as an individual investor.

If you would like to learn more about the benefits of investing in or taking part in a REIT, please feel free to contact my office at your earliest convenience to setup an appointment (ctalbert@talberttax.com).

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