Real Eate Investment Trusts or REITS were revived by the passage of an ACT of Congress in 1960. REITS are exempt from taxation if they meet the following criteria;
- have 75 percent of their assets in real estate, mortgages, cash, or government securities at the end of each quarter
- derive 70 percent of their gross income from real estate, and receive no more than 30 percent of their income from capital appreciation (this is designed to discourage investing in highly speculative projects)
- distribute 95 percent of their income to shareholders
- have at least 100 shareholders, no five of who can control more than half of the shares
REITS offer investors an opportunity to participate in real estate without committing a large amount of money. Shares of REITS are generally easy to buy and sell, especially those listed on exchanges. Because a REIT is a closed-end investment company, its price is determined on the open market. The price of a REITS shares may be above (trade at a premium), or below (trade at a discount) to the actual book value of the real estate holdings.
The internal Revenue Code (IRC) contains a number of conditions which a trust must meet to qualify as a Real Estate Investment Trust, including the requirement that a REIT pay out at least 95 percent of its taxable income. If a REIT meets these conditions, the income paid to the shareholders is not taxed twice (as it would be in a regular corporation), instead it is taxed only once in the hands of the shareholders.
REITS allow investors to participate in a variety of different realestate areas including office, retail, industrial, healthcare, hotel and lodging, public storage, student housing, apartments, senior housing and industrial property.