Real Estate Web Design - Information

A real estate investment trust or REIT (rhymes with treat) is a tax designation for a corporation investing in real estate that reduces or eliminates corporate income taxes. The REIT structure was designed to provide a similar structure for investment in real estate as mutual funds provide for investment in stocks.

When organized as a public company, ownership shares in REITs trade on public stock market exchanges like shares of common stock in other firms. REITs generally pay no federal income tax but are subject to a number of special requirements set forth in the Internal Revenue Code, one of which is the requirement to annually distribute at least 90% of its taxable income in the form of dividends to its shareholders. In practice, many REITs distribute substantially all of their current earnings and more, often resulting in dividend yields comparable to bond yields. (If an investment company such as a REIT distributes more than it actually earns in a year, the excess distribution is considered "return of capital" and is treated differently for tax purposes.) The distribution requirement may hamper a REIT's ability to retain earnings and generate growth from internal resources. This and other restrictions imposed by the Code generally limit a REIT's suitability for growth-oriented investors, but investors would be well-advised to fully consider a REIT's upside (or downside) potential for changes in its stock price, which can be very sensitive to environmental factors (e.g. changes in prevailing interest rates).