REIT is the abbreviation for real-estate investment trust. It consists of property-investment companies that disburse dividends to stockholders with revenue gleaned from rent and other fees. REITs correlate negatively with the NASDAQ Composite Index and seem to do well when other stocks don’t. They suffered greatly in the late 1990s, but have made a successful comeback in the bear market that began a decade ago.
Congress first launched REITs back in 1960 as a way to provide small investors with the opportunity to invest and make money from big properties. Outside of the USA, REITs are also well known in Australia, Japan and Brazil. Different countries have different laws governing the REIT including other real estate investment instruments.
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REITs have their appeal among individual real estate investors as they offer the most direct way to buying property, eliminating some of the cost and trouble that is often otherwise needless. Dividends are exempt from federal tax as long as they distribute at least 90% of taxable income to investors every year. Dividends can build up to 8 to 9% for each year and they give predictability almost unparalleled on today’s market.
Mutual funds have the same architecture as REIT’s and provide comparable investment structure. They offer each shareholder a pro rata percentage of earnings. REIT stocks can be purchased on most of the major stock exchanges. Dividends can be subtracted from taxable corporate revenues via REITs. An individual investor is only responsible for those taxes concerning dividends received and any capital gains.
In 2009, it was approximated that there were about 170 public REITs holding in excess of $300 billion US dollars. The focus of a lot of these trusts usually concerns residential or commercial properties. Handling the maintenance and administration concerns are the target of some REITs, but some are more detached and employ contractors to do these tasks.
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