Individuals are able to invest in large-scale, income-producing real estate through real estate investment trusts or REITs. It’s a company that owns and usually operates income-producing real estate or related assets including office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, warehouses, and mortgages or loans. A REIT does not develop real estate properties to resell them, unlike other real estate companies. What happens is that REIT purchases and develops properties and as part of its own investment portfolio, primarily operates them.
If you want to earn a share of the income produced through commercial real estate ownership without actually having to go out and buy commercial real estate, REITs can provide a way for you to do that as an individual investor.
What are the types of REITs?
A lot of REITs are registered with the Securities and Exchange Commission and are publicly traded on a stock exchange. These are also called as publicly traded REITs. There are those that may be registered with the SEC but are not traded publicly and these are called non-traded REITs. Among the many kinds of REITs, this is the most important distinctions in them. It’s important for you to understand whether your investment in a REIT is public traded or not, and what could be the following risks and benefits that may affect you.
Including your real estate in your investment portfolio can be done through REITs. You may also be getting higher dividends yields than some other investments in some REITs.
However, there are some risks you need to consider especially if you’re dealing non-exchange traded REITs. They do not trade on a stock exchange, therefore there are special risks involved with them such as the following:
You may purchase shares through a broken as a way to invest in a publicly traded REIT which is listed on a major stock exchange. If you see a broker that participates in the non-traded REITs offering, you can purchase shares of a non-traded REIT. Additionally, you may buy shares in a REIT mutual fund or REIT exchange-traded fund.
If you want to purchase publicly traded REITs, you may do so through a broken. In general, you can buy the common stock, preferred stock, or debt security of a publicly traded REIT. There are of course brokerage fees that apply.
A broker or a financial adviser usually sell non-traded REITs and these non-traded REITs generally have high up-front fees. The usual total of sales commissions and upfront offering fees is approximately 9 to 10 percent of the investment. The value of the investment is being lowered by these cost by a significant amount.
At least 100 percent of most REITs’ taxable income is being paid to their shareholders. The responsibility of paying taxes on the dividends and any capital gains they receive related to their investment in the REIT is giving to the shareholders. Generally, dividends paid by REITs are considered ordinary income and are not eligible for the reduced tax rates on other types of corporate dividends.
It’s best to consult a tax professional before investing in REITs.
The U.S Security and Exchange commissions are advising everyone to be careful of any person who attempts to sell REITs that are not registered with the SE.
To verify the registration of both publicly traded and non-traded REITs, you may visit the SEC’s EDGAR system. You may also review a REITs annual and quarterly reports and any offering prospectus using EDGAR.
CONTINENTAL TAX AND ACCOUNTING SERVICES