REITs & Wealth Building

Learn what Real Estate Investment Trusts are and how you can use them to build wealth…


In the current economy there are many investment choices.


An often overlooked but potentially rewarding investment choice is a REIT, however they are not as popular as many other investment choices but could possibly offer you a better rate of return than many popular investment options.


In this discussion will detail how you can make REITs a part of your portfolio and how you can use them to help build wealth more efficiently.


A “Real Estate Investment Trust” or REIT (pronounced REET) is an investment option that became available to investors many years ago (1960’s) and there popularity has grown over the years, however they are not as popular an option among many.  As an investor you have many investment choices–such as stocks, bonds, mutual funds, commodities and options (no pun intended) among others.


REITs are now offered around the world and is seen as an economical way to get into real estate without incurring the actual cost and expense of actually owning real estate.


The acceptance of investing in global real estate securities has grown over the years but there remains room for growth as developing markets continue to rise.


The REIT industry struggled beginning in 2007 as the global financial crisis kicked in. In response to the global credit crisis, listed REITs responded by paying off debt and re-equitizing (selling stock to get cash) their balance sheets.


At this time (October 2019), REITs are worth consideration as a part of your portfolio as they have in many years outperformed the S&P and other market indices when it comes to rate of return.


real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate.


REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouseshospitalsshopping centershotels and timberlands.  Many REITs engage in financing real estate in an effort to increase their returns.


REITs can be publicly traded on major exchanges, publicly registered but non-listed, or private. 


The two main types of REITs are equity REITs and mortgage REITs and this discussion will primarily focus on equity REITS.


A REIT (Real Estate Investment Trust) gives investors of all sizes access to income producing commercial real estate without the hassle of actually owning commercial real estate.


REITs have been increasing in popularity and they are designed to hold a range of real estate assets that are primarily commercial that provide investors the opportunity to invest in real estate with limited risk exposure.


For many investors, investing in this way represent the simplest, most cost-effective way to add real estate to their investment portfolio—without having to identify, manage  and sell properties themselves.


But not all REITs are created equal!


Your earning potential varies based on several factors, such as your investment sector, costs, fees, whether your REIT is inside or outside of your retirement account(s) and how you decide to participate in general.


REITs, or real estate investment trusts, are companies that own or finance income-producing real estate across a range of property sectors.  These real estate companies have to meet a number of requirements to qualify as REITs.  Most REITs trade on major stock exchanges, and they offer a number of benefits to investors.


REIT-owned real estate can be found in many countries, in every state in the United States–including local communities–and is an important economic engine for spurring growth in the world economy.


By purchasing real estate using a REIT you benefit through the properties they own, finance and operate.


REITs are real estate working for you without the hassle of locating, managing and selling!


Again, a real estate investment trust (“REIT”) is a company that provides you the opportunity to choose an investment vehicle which owns, operates or finances income-producing real estate–so that you won’t have too!


REITs provide “all” investors the chance to own valuable real estate, present the opportunity to access dividend-based income and total returns, and help many areas around the world move forward economically in a more efficient manner.


REITs “allow anyone” who is willing to invest–the  same opportunity” to invest as they have to invest in other industries.


You can purchase a REIT through the purchase of individual company stock or through a mutual fund or exchange traded fund (ETF).


The stockholders of a REIT earn a share of the income produced through real estate investment – without actually having to go out and buy, manage or finance property.


Over 80 million Americans alone invest in REIT stocks through their 401(k) and other retirement plans.


Assets that REITs  can own


In total, REITs of all types collectively own  trillions in gross assets across the U.S. alone, with stock-exchange (publicly owned)  listed REITs owning over $2 trillion in assets, representing more than 500,000 properties. U.S. listed REITs have an equity market capitalization of more than $1 trillion.


You can go to the following links to learn more about REITs



Always realize that REITs can invest in a wide variety of real estate property types, including offices, apartment buildings, warehouses, retail centers, medical facilities, data centers, cell towers, infrastructure and hotels among others.


Many REITs have limited focus or focus on a particular property type, but some hold multiples types of properties in their portfolios as well.


In the following paragraphs you can learn about many of the more popular “property sectors” that REITs invest in:


Office REITs

Office REITs own and manage office real estate and rent space in those properties to tenants and they can range from skyscrapers in large cities to small offices in rural and suburban areas.  They may focus on certain areas such as central business districts or suburban areas or rural areas. They may even focus on  specific classes of tenants, such as government agencies, technology, medical etcetera.


Industrial REITs

Industrial REITs own and manage industrial space such as warehouses and distribution centers and are particularly popular at  this time with the explosion of ecommerce and the demand for same day and next day delivery in many areas.


Retail REITs

Retail REITs own and manage retail real estate and rent space to tenants at large regional malls, outlet centers, grocery-anchored shopping centers, strip malls that are anchored by big box retailers and other similar developments of a retail nature.  Most retail REITs are structured in a way that the tenants pay both rent and the majority of operating expenses for the property.


Hotel REITs

Hotel REITs own and manage hotels and resorts and rent space in those properties at varying levels of service and amenities.  They serve the casual traveler to business customers and all those in between.


Residential REITs

Residential REITs own and manage  residences and rent space in those properties.   REITs that specialize in apartment buildings, student housing, manufactured homes and single-family homes among others are very popular at this time.  Many focus on geographical or “hot” areas of growth or certain classes of residential properties.


Health Care REITs

Health Care REITs own and manage health care-related real estate and collect rent from tenants in senior living facilities, hospice care facilities, medical office buildings, skilled nursing facilities and the like.


Self-storage REITs

Self-storage REITs own and manage self storage facilities and collect rent from customers and are seeing a boon in many areas. Self-storage REITs rent space to both individuals and businesses and are very popular at this time in many areas of the United States.


Infrastructure REITs

Infrastructure REITs own and manage infrastructure and collect rent from tenants and include fiber cable investments, wireless infrastructure investments, telecommunications towers and energy pipelines among others.


Data Center REITs

Data Center REITs own and manage facilities that customers use to safely store data and help keep servers and data safe, including providing uninterruptable power supplies, air-cooled chillers and physical security for companies large and small.


Diversified REITs

Diversified REITs own and manage a mix of property types and collect rent from tenants. They may include a combination of the REITs mentioned above including others such as timber REITS.


Specialty REITs

Specialty REITs own and manage a unique mix of property types and collect rent from tenants such as  movie theaters, casinos, farmland and outdoor advertising sites.


Throughout history real estate has generally proven to be an above average long-term investment!


When you purchase property it often comes with a large down-payment, therefore investing in REITs may be a great alternative to you owning real estate directly and help you build your wealth in a less painful way.


Keep in mind that if you own REITs you cannot:


*Deduct depreciation as Rental or Business expense

*Deduct other expenses associated with the properties in the portfolio

*Directly own property (you hold no title to real estate directly)

*Generally deduct dividends at the more favorable capital gains rate (must use ordinary income rate)


Most REITs will deduct those expenses associated with the properties and they are required by the IRS to return a minimum of 90% of its taxable income back to shareholders each year, therefore REITs pay dividends and also have the potential for growth.  Most investors think of REITs as slow growth vehicles that pay big dividends. However in 2019, the REITs, as an industry, have outperformed and may be worth considering as part of your portfolio.


If you invest in a 401k or other retirement plan you probably already invest in REITs in an indirect way.  However, directly investing with REITs may be worth considering as part of your asset allocation.  They can be of real importance if they are inside of your retirement account as they have the potential to provide you solid returns along with a delay or avoidance of tax payments for a period of time.


To reiterate, REITs generate income, and 90 percent of that “taxable income” must be distributed to the shareholders on a regular basis.  REITs make money from the properties they purchase by renting, leasing and/or selling them.





Investing in income-generating real estate can be a great way to increase your net worth and may be worth considering.


Because directly investing in real estate, particularly commercial real estate, is simply out of reach financially for many–a REIT which allows you to pool your resources with other small investors and invest in large-scale commercial real estate as a group may be a better option.


REITs (pronounced like “treats”) allow you to get into commercial real estate and benefit from the returns in a more cost efficient and less riskier manner.


In this discussion you learned that REIT stands for real estate investment trust and is thought of  by many as  a “real estate stock.”


Essentially, REITs are corporations that own and manage a portfolio of real estate properties and mortgages.  Anyone can buy shares in a “publicly traded” REIT.


They offer the benefits of real estate ownership without the headaches or expense of property management!


Keep in mind that not all REITs are created or managed equally.  Investing in some types of REITs also provides the important advantages of liquidity and diversity.  You can sell shares quickly and they are normally easily sold.  And because you’re investing in a portfolio of properties rather than a single building, you face less financial or investment risk.


­REITs­ came about in the 1960’s, when Congress decided that smaller investors should also be able to invest in large-scale, income-producing real estate.  Congress determined that the best way to do this was to follow the model of investing that was already in existence in other industries that traded on the exchanges.


Remember, a company must distribute at least 90 percent of its “taxable income” to its shareholders each year to qualify as a REIT.


Most REITs pay out 100 percent of their taxable income.  In order to maintain its status as a pass-through entity, a REIT deducts these dividends from its corporate taxable income.  A pass-through entity does not have to pay corporate federal or state income tax–it passes the responsibility of paying these taxes onto its shareholders (i.e. you if you owned shares in a REIT).


REITs cannot pass tax losses through to investors, however!


Because of the high demand for real estate funds, President Eisenhower in 1960 signed the real estate investment trust tax provision qualifying REITs as pass-through entities.


A corporation must meet several other requirements to qualify as a REIT and gain pass-through entity status such as:


  • Be structured as corporation, business trust, or similar association
  • Be managed by a board of directors or trustees
  • Offer fully transferable shares
  • Have at least 100 shareholders
  • Pay dividends of at least 90 percent of the REIT’s taxable income
  • Have no more than 50 percent of its shares held by five or fewer individuals during the last half of each taxable year
  • Hold at least 75 percent of total investment assets in real estate
  • Have no more than 20 percent of its assets consist of stocks in taxable REIT subsidiaries
  • Derive at least 75 percent of gross income from rents or mortgage interest


­At least 95 percent of a REIT’s gross income must come from financial investments (in other words, it must pass the 95-percent income test).  These include rents, dividends, interest and capital gains.  In addition, at least 75 percent of its income must come from certain real estate sources (the 75-percent income test), including rents from real property, gains from the sale or other disposition of real property, and income and gain derived from foreclosure of property.


Tax Reporting


You would receive a schedule 1099-DIV from your REIT and you would include that income on your tax return.  By providing the tax reporting documents to your tax professional they would include the dividends on your tax return and you would pay taxes at the appropriate rate depending on your filing status and income level.


The Dividends from REITs are almost always “ordinary income” as opposed to “qualified dividends” that would be taxed at the lower capital gains rate.


Box 1 of the 1099-DIV is where a REIT reports such dividends!


Payments from REITs are referred to as “dividends,” but they are not the same as the dividends that you are probably familiar with when you buy stock.


A REIT generates income in different ways than stocks, REIT dividends include the following:


  1. Ordinary income: Money made from collecting rent or mortgage payments.
  2. Capital gains: Money made from selling property for more than the REIT paid for it.
  3. Return of capital: This is essentially the REIT giving you some of your own money back.


In general, “what happens in the REIT” dictates the tax treatment.


Capital gains distributions, for example, are subject to capital gains taxes.  If no properties in the portfolio of the REIT was sold during the year you would only have ordinary income and/or return of capital on your 1099-DIV.


As a practical matter you will normally receive a 1099-DIV that will have a portion of the Dividends designated as:


  • Return of Capital–dependent on how much you invest in the REIT and how much has been already designated as return of capital on prior year 1099-DIV forms
  • Ordinary Income–will almost always receive on 1099-DIV unless REIT had a loss for the tax year, and
  • Capital Gains–dependent on the type of REIT and the sectors the REIT invests in and if properties in the sectors were sold for a gain during the tax year


In closing, a real estate investment trust (REIT) allows you to:


* have ownership interest,  but not manage income-generating real estate or related assets

*invest in the collection of properties that a REIT would manage, and you would benefit from the dividends earned and capital gains

*be part of a group that would also bear the cost of taxes and any other losses incurred

*be able to build up your financial portfolio without directly buying real estate

*potentially have a lower up front cost and an ownership interest in commercial real estate


The main difference between a REIT and a real estate company is that a real estate company develops properties to resell them, while REITs acquire and develop properties to own, hold and manage–but may sell at a future date.


They can be looked at from a different angle by envisioning a REIT as a “mutual fund” for real estate” that contain property sectors and/or mortgage backed securities that are aggregated and contain all of the requirements discussed above that must be met–so that the REIT can maintain their pass-through tax advantage status–according to IRS guidelines.


Always be aware of the difference between an Equity REIT and a Mortgage REIT that are now on the market.


In this discussion we have primarily discussed equity REITs, however always keep in mind that mortgage REITs that invest in mortgage backed securities are also available.


  • Equity REIT companies procure business properties such as shopping malls, hotels, office buildings and commercial buildings, then rent out the spaces.  After deducting all operational costs, equity REITs pay dividends in the form of return of capital and ordinary dividends to their shareholders annually.  The dividends also include any appreciation of the property(s) and gain from sale (capital gains)Equity REITs have been discussed in this article quite extensively.


  • A mortgage REIT or mREIT, provides mortgage financing or obtains mortgage-backed securities and earns income from the interest from such properties. Mortgage REITs can either be on residential or commercial properties. In fact, some REIT companies deal with both (hybrid). Due to their high potential for leverage, mortgage REITs are a rather risky investment, as they gain profits from interest, which is something that can change.  Mortgage REITs have not been discussed in great detail in this article–however you must be aware of their existence as they too may be worth considering and adding to your asset portfolio.


NOTE: A HYBRID REIT which includes equity and mortgage backed securities are also offered by some REITs


As a potential investor you must also determine if the REIT you are considering to invest in is private (a private REIT does not need to disclose as much information as public REITs do) or public (a public REIT is registered with the Securities and Exchange Commission and trades on national stock exchanges).


By not having to publicly disclose information to the public a private REIT could lead to management making the wrong investment decision and you not knowing about those decisions. Public REITs offer investors more exposure to properties across the world than do private REITs and more information about investment activity would normally be publicly available for those who are considering investing in a Public REIT.


And an even greater incentive for you to seriously consider adding REITS to your asset allocation at this time is the fact that you can now under the new tax law enacted in 2017 possibly deduct 20% of MLP or REIT income as qualified business income,  thereby lowering your taxable income.


All the best toward your REIT and Wealth Building success…



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Be sure to do additional research as the links below are provided for convenience but does not represent an endorsement by


Public REITs:


Sure Dividend


Private REITs:

Non-traded REITs 101 Investor Junkie

Fundrise is a private REIT that offer reasonable fees and low initial investment.

  • Diverse portfolio of private real estate deals
  • Minimum investment of $500 to $1,000
  • Management and advisory fees add up to about 1%, but be aware of other fees

Fundrise’s proprietary eREITs® the next evolution in REITs, combining innovative technology and direct access to private market real estate, all at lower costs

5 Top REIT Stocks–TheMotleyFool

How to Set Up a Self-Directed IRA…


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