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What is a Real Estate Investment Trust?

A Real Estate Investment Trust, or REIT, is first and foremost a company. Their objective is to own and manage real estate that, in some manner, produces income. These money making real estate properties can range in interest from warehouse rental space to apartment buildings. They can also include, shopping malls, hospitals and resorts. Although the idea of a REIT is fairly easy to understand, the creation of one is anything but easy and requires a clear understanding of U.S. tax law and a good attorney.

One of the key components of a REIT is that they must return a hefty 90 percent of their taxable income back to shareholders as a dividend each year. As far as shareholders go, a REIT holds a 5/50 rule, which means that at the end of each year, only five or fewer individuals can hold no more than 50 percent of the shares.

U.S. tax law outlines the conditions and requirements the board of directors must meet to continue to qualify as a REIT. Along with stringent income requirements a REIT also must be structured like a corporation or trust, and can't be any type of bank or insurance company.

Basically, a REIT is a company, which owns and runs income generating real estate where at least 75 percent of its total assets must be invested back into real estate. Although the term REIT and what it stands for is not super common knowledge, many individuals with expendable income consider investing in them. Individuals considering REITs may benefit from discussing their concerns with a skilled business law attorney.

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