Congress established real estate investment trusts (REITs) in 1960. REITs are companies that own or finance income-producing real estate in a range of property sectors. Most REITs operate along a straightforward and easily understandable business model: By leasing space and collecting rent on its real estate, the company generates income which is then paid out to shareholders in the form of dividends. REITs must pay out at least 90 percent of their taxable income to shareholders—and most pay out 100 percent.
To qualify as a REIT a company must:
- Invest at least 75 percent of its total assets in real estate
- Derive at least 75 percent 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 percent of its taxable income in the form of shareholder dividends each year
- Be an entity that is taxable as a corporation
- Be managed by a board of directors or trustees
- Have a minimum of 100 shareholders
- Have no more than 50 percent of its shares held by five or fewer individuals
- Equity REITs. The majority of REITs are publicly traded equity REITs. Equity REITs own or operate income-producing real estate. The market and Nareit often refer to equity REITs simply as REITs.
- Mortgage REITS. mREITs focus on residential financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities and earning income from the interest on these investments.
- Commercial REITS. cREITs focus on commercial financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities and earning income from the interest on these investments.
I Prefer Income‘s REIT program focuses on Equity REITS. There are currently 16 REIT categories with approximately 150 companies:
- Data Centers
- Farm Land
- Retail – Malls
- Single Tenant – Triple Net Lease