Real estate investment trusts, or REITs as they’re commonly known, were created in 1960 to give everyday investors access to a diversified portfolio of cash-flowing real estate through the purchase and sale of securities. Similar to acquiring an interest in a large company in the stock market, investors could now participate in real estate on a grand scale, and with tax benefits to boot.
Real estate investment trusts come in a variety of flavors, but the primary types are Equity REITs and Mortgage REITs. Equity REITs invest in the ownership position whereas Mortgage REITs originate loans that are secured by real estate. Within these two buckets of real estate investment trusts there is even further specialization. For example, there are many property type-specific REITs like Apartment REITs, Retail REITs, Hotel REITs, Industrial REITs and Office REITs (like 1st stREIT Office). The variety of real estate investment trusts allows investors to diversify as they see fit.
Investors seeking steady yield should understand that real estate investment trusts must pay out at least 90% of their earnings in the form of dividends in order to maintain their tax-advantaged REIT status. This largely mitigates the risk that the Board of Directors redirects earnings back into the company instead of paying them out to investors in the form of dividends.
Steady income and diversification aren’t the only benefits that real estate investment trusts have to offer. Investors are able to reap lucrative tax benefits as well. Because REITs aren’t taxed at the corporate level, shareholders avoid the dreaded “double taxation” of corporate tax and personal income tax. Instead, REIT earnings are 100% corporate tax-free, meaning dividends flow to investors untouched by Uncle Sam.
So if you’re seeking the benefits of cash-flowing real estate, while trying to avoid double taxation on your dividends, investing in a real estate investment trust like Streitwise could be for you.
Mr. Karsh is CEO and Co-Founder of Streitwise and Tryperion Holdings.
Prior to forming Streitwise, Mr. Karsh was an Acquisitions Analyst for Canyon Capital Realty Advisors and the Canyon-Johnson Urban Funds, where he was responsible for underwriting, structuring and executing value-add and opportunistic transactions. He holds a Bachelor of Arts degree in Political Science from the University of Pennsylvania. Mr. Karsh is a member of ULI and is also a Real Estate & Construction member of the Jewish Federation of Greater Los Angeles.