A real estate investment trust (REIT) is a company that owns, operates or finances income-producing real estate by pooling the capital of many investors to purchase and operate a portfolio of real estate assets. Discover how you can unlock investment-grade real estate for tax-advantaged income through REITs. 

The REIT structure enables individual investors to obtain tax advantages and generate potentially substantial total returns through rent growth and asset appreciation, while reducing risk through diversification.

Why invest in REITs?

• Investment-Grade Real Estate: REITs enable individuals to invest in high-quality, investment-grade real estate otherwise out of reach.

• Low Correlation to Traded Stocks: REITs have low correlation to traded stocks, making them an excellent portfolio diversifier. By adding REITs, an investor can reduce overall portfolio risk while also increasing returns.

• Prolific Income Generation: REITs must distribute 90% of their taxable income via dividends to stockholders, often resulting in higher dividends than other asset classes.

• A Hard Asset: Real estate is a hard asset (“bricks and mortar”) that may be recession-resistant with inflation protection from regular rent increases.

• Total Return: History demonstrates exceptional REIT returns from dividends plus appreciation.

• Tax-Advantaged Income: REITs offer significant tax advantages, including a 20% deduction for qualified REIT dividends.

• Professional Management: REITs provide professional management, maximizing shareholder value through management expertise and operating efficiencies at scale.

• Increased Transparency: REITs give investors additional oversight by independent directors, analysts and third-party auditors.

Shareholders enjoy REIT earnings without having to actively participate in the real estate business. That’s why millions of Americans invest in REITs, benefitting from real estate ownership without having to buy, manage or operate the properties within their diversified portfolio.

REIT Structures

• Public Traded REITs: These REITs are registered with the Securities and Exchange Commission (SEC) and trade on a public exchange.

• Public Non-Traded REITs: These REITs are registered as a public company with the SEC but are not traded on a public exchange.

• Private REITs: These are private companies exempt from SEC registration.

Note: Private and public non-traded REITs do not trade on exchanges; they have limited liquidity but typically offer a more stable value.

Real estate investment trusts own and manage more than $4 trillion in gross assets across the United States. This includes approximately 575,000 properties and millions of acres of undeveloped land.

Some REITs specialize based on asset class, for example, investing in residential housing communities.

Since their creation by Congress in 1960, REITs have allowed anyone to invest in a diversified real estate portfolio with professional management.

Approximately 168 million Americans are invested in REITs. This number equates to roughly 50% of American households, whether directly through the purchase of REIT shares or indirectly through mutual funds or exchange-traded funds incorporating REITs.

For decades, REITs have proven themselves by providing a reliable income vehicle with growth and inflation protection, a savings solution for the future or retirement.

--

This article originally appeared on Capital Square's website.