SIE (Training Consultants v3.5, 2025): Ch. 1 Equity Securities, Sec. 8 - Real Estate Investment Trusts

Real Estate Investment Trust (REIT)

A company that manages a portfolio of real estate properties to earn profits for shareholders; invests in real estate and earns revenue from rental income.

Equity REIT

A REIT that takes equity positions in real estate; shareholders receive income from rents and capital gains when properties are sold.

Mortgage REIT

A REIT that lends money to property developers and passes interest income to shareholders; generally highly leveraged.

Hybrid REIT

A REIT that combines characteristics of both Equity and Mortgage REITs.

REIT Tax Requirements

Must pay at least 90% of income to shareholders and have at least 75% of assets in real estate-related activities to qualify for tax exemption at the trust level.

REIT Investor Benefits

Income, diversification, growth, professional management, and no minimum investment requirement or tax bracket limitations.

REIT Limitations

Do not provide depreciation write-offs; dividends are taxed as ordinary income; losses are not passed through to investors.

REIT Advantages

Property value appreciation, dividend income, liquidity, increased demand for real estate, higher occupancy of rental properties, managed by a Board of Trustees.

REIT Risks

Weakening demand for real estate, rising interest rates, overbuilding by developers, low correlation with other financial assets.

REIT Trading

Some REITs trade OTC, some on exchanges; public REITs must be SEC-registered; REITs are not redeemable, not investment companies, not regulated under the Investment Company Act, and not direct participation programs.

Private REIT

A REIT not traded on a national exchange or registered with the SEC; not subject to the same disclosures as public REITs.

REIT Index ETF

A fund that invests in multiple REITs, increasing diversification in the real estate sector.

What is a REIT?

A company that manages real estate properties to earn profits for shareholders through rental income.

What is an Equity REIT?

A REIT that takes equity positions in real estate, providing income from rents and potential capital gains.

What is a Mortgage REIT?

A REIT that lends money to property developers and passes interest income to shareholders; typically highly leveraged.

What is a Hybrid REIT?

A REIT that combines both equity and mortgage investment strategies.

What tax requirements must a REIT meet to avoid corporate taxation?

Must pay at least 90% of income to shareholders and have 75% of assets in real estate-related activities.

What benefits do REITs provide to investors?

Income, diversification, growth, professional management, no minimum investment requirement, and no tax bracket restrictions.

Do REITs provide depreciation write-offs to investors?

No, dividends are taxed as ordinary income and losses are not passed through.

What are some advantages of investing in REITs?

Property appreciation, dividend income, liquidity, increased real estate demand, higher occupancy rates, managed by a Board of Trustees.

What are the risks of investing in REITs?

Weakening real estate demand, rising interest rates, overbuilding, low correlation with other financial assets.

How are REITs traded?

Some trade OTC, some on exchanges; public REITs must be SEC-registered; REITs are not redeemable, not investment companies, not regulated under the Investment Company Act, and not direct participation programs.

What is a Private REIT?

A REIT not traded on an exchange or registered with the SEC; not subject to the same disclosures as public REITs.

What is a REIT Index ETF?

A fund investing in many REITs to increase diversification in the real estate sector.