Office spaces, apartment buildings, hospitals, warehouses, hospitals, shopping centers, timberlands, and hotels are all types of commercial real estate properties that can be owned by REITs. REITs, also known as real estate investment trusts, are specialized firms that own and often operate income-producing real estate.
Believe it or not, but REITs pay off well for investors, which allow for properties and mortgages to be traded on major exchanges like stocks.
Income-seeking investors love REITs. REITs are desirable because, by law, REITs are required to maintain dividend payout ratios.
According to U.S. Federal income tax law, Internal Revenue Code section 856 suggested that, REITs are “any corporation, trust or association that acts as an investment agent specializing in real estate and real estate mortgages.”
A REIT is attractive to those who are interested in liquidity, special tax considerations, dividends that are high yield. However, there are important things to know about REITs, including the fact that there are nontraded REITs and much more:
- REIT investors specifically invest in a range of companies building, owning, and managing commercial real estate properties, rather a commercial real estate. In fact, REITs are nothing like traditional homeownership. Piecemeal ownership is made possible through REITs.
- REITs are far from boring and they’re volatile. There’s a consensus that they provide lofty returns, but they’re not steady investments. With that said, they do have strong long-term performances and they do provide an opportunity for diverse interests.
- REITs are attractive for many reasons. They don’t merely improve the likelihood of a portfolio’s return, but it also reduces volatility and produces a source of income.
- The distributions from REITs are taxed as ordinary income 90 percent of the time during tax season. This isn’t great news for shareholders in high tax brackets, but REITs are only once. REITs are best matched with tax-deferred entities such as IRAs and 401(k) accounts.
- Interested parties can purchase individual REITs, just as one might purchase stocks or bonds. Also, you can invest in international REITs funds.
Jerold E. Novack is the Chief Financial Officer (CFO) and Senior Executive Vice President (SEVP) of Bluerock Real Estate, a national real estate investment firm with corporate offices located in Manhattan. A private equity real estate asset manager, Bluerock focuses on Core-Plus, Value-Add, Opportunistic and Development investment strategies.