How an REIT Works
A real estate investment trust (REIT) is a corporate entity that invests in real estate and real estate assets in a way that reduces their income tax liability. One of the key criteria for a real estate investment trust is that the company is required to pay 90 percent of its taxable income to shareholders annually.
Other People Are Reading
-
Types
-
According to the U.S. Securities and Exchange Commission, there are three types of real estate investment trusts. Equity REITs, which are the most common type, invest in real estate and profit from collected rents. Mortgage REITs lend money to owners and developers, or invest in products that are secured by real estate mortgages. Hybrid REITs combine both equity and mortgage REITs.
Conditions
-
In addition to paying 90 percent of its taxable income to shareholders, real estate investment trusts must also invest a minimum of 75 percent of its total assets in real estate and must generate at least 75 percent of its gross income from real estate, either investments in mortgages or real property.
-
History
-
In 1960, President Dwight D. Eisenhower signed the Real Estate Investment Trust Act, which authorized REITs. By 2000, there were 215 REITs with $160 billion in combined market capitalization.
-
