Get Statement Of Policy Regarding Real Estate Investment Trusts

“I recommend REITs within a managed portfolio,” Devine said, noting that most investors should limit their REIT exposure to between 2 percent and 5 percent of their overall portfolio. Here again, a financial professional can help you determine what percentage of your portfolio you should allocate toward REITs, if any.

While a REIT is still open to public investors, investors may be able to sell their shares back to the REIT. However, this sale usually comes at a discount; leaving only about 70% to 95% of the original value. Once a REIT is closed to the public, REIT companies may not offer early redemptions.

A REIT is required to operate in compliance with the REIT tax rules in order to maintain its REIT status. With the help of a REIT tax advisor, REITs can generally structure their real estate operations to fall within the REIT tax rules (usually without too much pain from a business perspective).

Invest at least 75% of its total assets in real estate. Derive at least 75% of its gross income from rents from real property, interest on mortgages financing real property or from sales of real estate. Pay at least 90% of its taxable income in the form of shareholder dividends each year.

Since real estate investments are illiquid, investors are unable to sell their investment before the end of that hold period, unlike public stocks which can be sold at any time. Sponsors generally target a hold period of 3-5 years, although some investments target as long as 10 years.

To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.

For each tax year, the REIT must derive: at least 75 percent of its gross income from real property-related sources; and. at least 95 percent of its gross income from real property-related sources, dividends, interest, securities, and certain mineral royalty income.

Public REITs are currently required to disclose in their quarterly reports on Form 10-Q and annual reports on Form 10-K any purchase, aggregated on a monthly basis, made by or on behalf of the issuer or any “affiliated purchaser” of shares or other units of any class of the issuer's equity securities registered under ...