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