Real Estate Investment Trusts (REIT)
Blind REIT
- Can buy shares but it is not said what is being bought with your money - Don't list the properties that they own or intend to purchase
UPREIT
-an alternative to a section 1031 like-kind exchange a a way to defer or completely avoid capital gains tax liability when an individual or company wants to sell appreciated real estate
REIT tax treatment asset requirements
-at least 75% of the value of a REIT's asset must consist of real estate assets, cash and government securities -no more than 5% of the value of the assets may consist of securities of any one issuer if the securities are not includable under the 75% test -a REIT may not hold more than 10 percent of the outstanding voting securities of any one issuer if those securities are not includable under the 75 percent test
REIT tax treatment stock and ownership requirement
-shares in a REIT must be transferrable and must be held by minimum of 100 persons -no more than 50 percent of REIT shares may be held by five or fewer individuals during the last half of the taxable year
why were REITs created?
-to give small investors a way to invest in real estate -can provide significant diversification benefits and opportunities
what percent of all REITs in existence are currently publicly traded investments?
80
What kind of REIT would someone probably use when investing in distilleries or other socially undesirable investments?
Blind REIT
5 types of REITs
Equity REIT Mortgage REIT Hybrid REIT Blind REIT UPREIT
What is a chief advantage that owning shares of a REIT has over buying or renting
REITS can be sold at any time
REIT
Real Estate Investment Trust
Hybrid REITs
Real estate investment trusts that invest in both properties and mortgages.
Mortgage REITs
Real estate investment trusts that purchase mortgage obligations and effectively become real estate lenders.
Instead of selling the property, the owner contributes to a(n) __________ in exchange for securities called "operating partnership units" or "limited partnership units." The partnership units are worth the same amount as the contributed property.
UPREIT
Which REIT allows selling property owners the ability to convert their ownership of one or more of their specific real estate properties into an interest, which is immediately, or can ultimately be converted into, a private or public security?
UPREIT
Most large REITs are _________
UPREITS
What is a REIT?
a company that manages a portfolio of real estate to earn profits for shareholders
Upon contributing real estate to an UPREIT, what does the property owner receive?
a put option that allows him or her to convert his or her partnership units into REIT shares or cash after a minimum of one year
Why are UPREITS a valuable tool for estate planning?
allows owners to transfer appreciated property to heirs tax free
REITS are awarded favorable tax treatment if they meet certain federal regulations
asset requirements income requirements distribution requirements stock and ownership requirements
REIT tax treatment income requirements
at least 95% of the entity's gross income must be derived from dividends, interest, rents and gains from the sale of certain assets
What kind of REIT would someone probably use if they were investing in a country with a controversial and questionable record?
blind REIT
how is money made in a mortgage REIT?
by collecting interest payments on loans to real estate owners
what kind of estate is a REIT?
concurrent estate
REIT tax treatment distribution requirements
distribution to shareholders must be equal or exceed the sum of 90 percent of REIT taxable income
________ REITS invest directly in real property, receive rental income and lease payments, and at times realize capital gains from selling properties
equity
which kind of REIT accounts for much of the industry's growth in the last few years?
equity
What is the taxable event in an UPREIT?
if an owner decides after a minimum of 1 year, to use put option and trade partnership units for cash instead of shares
types of real estate for REITS
industrial/manufacturing, office, retail (strip centers and malls), restaurant, residential, lodging/resorts, health care, specialty (theatres, golf courses, timberland, auto dealerships, and spas), agriculture, self-storage, diversified
REITs are _____________ correlated with stocks and bonds assets performance, reducing the overall risk of your portfolio
inversely
Why are mortgage REITs risker than Equity REITs?
less predictable and not very dependable
UPREIT partnership units are a ________ liquid source of capital than real estate
more
are REIT tax treatment requirements mutually exclusive?
no
is real estate owned with a mortgage reit?
no
REIT diversification opportunities
property type geographic perspectives price range objectives
Equity REIT
real estate investment trust that owns and operates income-producing real property
in a mortgage REIT, who are loans made to?
real estate owners
Why do small investors normally struggle when it comes to investing in real estate?
small investors don't normally have enough capital to fully invest in real estate
How does an UPREIT work?
the REIT is a managing partner and typically majority owner in a single large umbrella partnership, which in turn owns all or part of individual property limited partnerships (LPs) or limited liability companies (LLCs)
Why are Equity REITS often preferred by investors?
the prospects for growth and income - as their dividends grow, and the value of their properties increase over time - and they generally represent less risk than other types
what does REIT success depend on?
the underlying value of its investments as well as the quality of management
major drawback of mortgage REITs?
these trusts are sensitive to the credit quality of the borrower
concurrent estate
two or more individuals owning interests in property
hybrid REITs are...
very liquid, shares can be sold at any time, can avoid double taxation if you meet minimum federal requirements
how is a REIT like a mutual fund?
your investment is pooled with other people's investments
