Real estate investment trust (REIT)

Learn how REITs can help investors access the opportunity in real estate.

Understand the impact

Real estate investment trust (REIT)

Learn how REITs can help investors access the opportunity in real estate.

Understand the impact

What is a REIT?

A real estate investment trust, or REIT, is a company that owns, operates or finances income-producing commercial real estate or related assets. In this way, REITs allow investors to “own” or help finance real estate assets by simply owning shares of a REIT.

REITs invest in a broad range of property types including office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities and warehouses. 

Size of the REIT market1

REITs collectively own more than $4.5 trillion in gross assets across the U.S., the majority of which through publicly traded REITs ($3 trillion). 

150 million Americans live in households with REIT investments through their 401(k) and other investment funds.

Types of REITs

Equity REITs own or operate income-producing real estate. 

Commercial mortgage REITs provide financing for income-producing real estate investments typically by investing in floating-rate mortgage loans. 

Publicly traded REITs are traded on a national exchange and offer daily liquidity. 

Public non-traded REITs are registered with the SEC but not traded on a national exchange and typically feature limited liquidity.

Private REITs do not trade on a national exchange, are exempt from SEC registration and generally can be sold only to institutional investors.

Tax treatment of REITs

The Tax Cuts and Jobs Act of 2017 introduced a change to the taxation of ordinary REIT dividends.²

  • REITs are generally not taxed at the corporate level to the extent they distribute all of their taxable income as dividends. 
  • The tax law provided a 20% deduction on ordinary REIT dividends. 
  • As a result, REIT investors receive higher after-tax income compared to that under the prior tax law. 

Investor considerations

Investors need a clear understanding of the risks and benefits of REITs to make well-informed decisions on how to best incorporate them to construct diversified portfolios. Investors should take into account their own financial situation and perform thorough research before making any investment decisions concerning REITs.

Learn more

Read why the Tax Cuts and Jobs Act may mean more after-tax income for REIT investors.

Understand the impact

  • NAREIT, www.reit.com, as of 6/30/2022.

  • Dividends that are not declared as capital gain dividends or qualified dividend income.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

All investing is subject to risk, including the possible loss of the money you invest.

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