A REIT is an acronym for real-estate investment trust. It is comprised of property-investment companies that pay dividends to stockholders with revenue gleaned from rent and other fees. In an odd twist of fate, REITs tend to correlate negatively with the fluctuations of the stock market; that is, REITS seem to zig when the NASDAQ Composite Index zags. They suffered greatly during the late 1990s, but have made a flourishing comeback in the bear market that began a decade ago.
These real estate investment trusts have been around since 1960 when they were first established by Congress to provide small investors with the opportunity to invest in large properties that produced income. Today, the REIT is well known in many other countries besides the United States including: Australia, Japan, and Brazil. Different countries have varying laws governing the REIT as well as other real estate investment vehicles.
REITs have their appeal among individual real estate investors as they offer the most direct means to buying property, eliminating some of the expense and difficulty that is often otherwise necessary. Dividends are exempt from federal tax as long as they distribute at least 90% of taxable income to investors annually. Dividends can amass 8 to 9% per year and they offer predictability almost unheard of on today’s market.
The inspiration for the design of REITs were the same investment structure afforded by mutual funds. Each shareholder is entitled to a pro rata percentage of profits. All the major stock exchanges carry the stocks of most REITs.The deduction of dividends from taxable corporate income is permitted with REITs. Only those taxes involving dividends received and any capital gains must be reported by an individual investor.
Last year, about 170 public REITs controlled more than $300 billion US dollars.The focus of many of these trusts usually concerns residential or commercial properties. Handling the maintenance and management concerns are the focus of some REITs, but others are more distant and hire contractors to perform these tasks.
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