Innovative ways to plan a REIT Investment

A REIT generally has large investment properties in their portfolio. A REIT usually leases properties to tenants and earns income in the form of rent, which is then divided among its shareholders. In order to qualify as a REIT, a company must comply with the following rules –

  • The company must invest 75% of its assets in real estate, cash or treasuries.
  • It must receive 75% of its income from property rents, sale of its real estate or from the interest on the mortgages.
  • The company must distribute 90% of its income among its shareholders. The remaining 10% can be reinvested in new properties or assets.
  • A REIT must have at least 100 shareholders after one year of its existence.
  • Not more than 50% of the shares are owned by its five or fewer shareholders during the last half of the taxable year.
  • The company must be taxable as a corporation.
  • The company must be managed by a board of directors or trustees.

How a REIT generates revenue?

Most REITs lease properties to tenants and make money from the rents, which is then divided among the shareholders as dividends. The majority of REITs trade on the National Stock Exchange and can be easily bought or sold. On the other hand, some REITs lend money to investors and earn interests on the loan. As you can see, a REIT’s source of income varies depending upon the sector in which that particular REIT operates.

Varieties of REITs

  • Equity REIT – Equity REITs buy, own and sell investment properties. These REITs generate revenue through rents and not by selling real estate properties. They are publicly traded on the stock exchange.
  • Mortgage REIT – As the name suggests, Mortgage REITs lend money to investors and earn interests on the loan. They also borrow money at low-interest rates and then buy mortgages that could pay a higher return. The spread between the two interest rates is the REIT’s profit. For example, let’s say a REIT raises $20 million through its investors. It borrows another $50 million at an interest of 2% per annum or $1 million, which is the annual interest expense of borrowing. Now, it uses this $70 million for buying mortgages that pay 5% interest or $3.5 million, which is the annual interest income generated from the mortgage. The spread between these two interest rates will be the REIT’s profit, which in this case is –

Profit  = (Annual interest income – annual interest expense)
             =$(3.5-1) million
            = $2.5 million.

  • Hybrid REIT – Hybrid REITs are the ones that own and lease investment properties as well as fund mortgage loans to real estate investors. Basically, it’s a mixture of Equity and Mortgage REITs.
  • Publicly Traded REITs – These REITs are listed with the Securities and Exchange Commission (SEC), and trade on the National Stock Exchange. The shares of these REITs can be easily bought and sold. These REITs are regulated by the U.S. Securities and Exchange Commission.
  • Publicly Non-Traded REITs – These REITs are also registered with Securities and Exchange Commission but don’t trade on the National Stock Exchange. They are more illiquid than publicly traded REITs but could be more stable, as they are not subject to market fluctuations.  
  • Private REITs – These REITs are neither listed with the Securities and Exchange Commission nor do they trade on the National Stock Exchange. They are accessible to only a few selected investors.

The majority of REITs are equity REITs. However, trusts like mortgage REITs or publicly traded REITs also have their own benefits. Therefore, it’s important that you speak to an experienced REIT advisor, who can guide you through each of these REITs more deeply. We do have a team of highly qualified advisors for you. In no time, you could speak to up to three advisors.

5/5 (1 Review)

Call Now

(855) 378-3443
invest-in-REITs-REIT-real-estate-investment-trust-fixed-returns-on-investment
Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only. Securities offered through Arkadios Capital, member FINRA/SIPC. Advisory Services offered through Arkadios Wealth. Perch Wealth and Arkadios are not affiliated through any ownership.
Check the background of this firm/advisor on FINRA’s BrokerCheck.

© 2022 Perch Wealth.
broker-check-certified-invest-with-confidence

Perch Financial LLC and Arkadios Capital LLC do not provide legal or tax advice. Securities offered through Arkadios Capital LLC Member FINRA/SIPC and MSRB registered. Arkadios Capital LLC is unaffiliated with any entity herein.

1031 Risk Disclosure:

  • There is no guarantee that any strategy will be successful or achieve investment objectives;
  • Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
  • Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
  • Potential for foreclosure – All financed real estate investments have potential for foreclosure; ·Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments;
  • Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
  • Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits


No offer to buy or sell securities is being made. Such offers may only be made to qualified accredited investors via private placement memorandum. Risks detailed in a private placement memorandum should be carefully reviewed, understood, and considered before making such an investment. Prospective strategies and products used in any tax advantaged investment planning should be reviewed independently with your tax and legal advisors. Changes to the tax code and other regulatory revisions could have a negative impact upon strategies developed and recommendations made. Past performance and/or forward-looking statements are never an assurance of future results.

Many of the investments offered will be only available to those investors meeting the definition of an Accredited Investor under SEC Rule 501(A) and offered as Regulation D private placement securities via a Private Placement Memorandum (“PPM”). Prospective investors must receive, read, and understand all the risks associated with buying private placement securities. Investments are not guaranteed or FDIC insured and risks may include but are not limited to illiquidity, no guarantee of income or guarantee that all tax advantages or objectives will be met and complete loss of principal investment could occur.

Risk Disclosure: Alternative investment products, including real estate investments, notes & debentures, hedge funds and private equity, involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop. There may be restrictions on transferring interests in any alternative investment. Alternative investment products often execute a substantial portion of their trades on non-U.S. exchanges. Investing in foreign markets may entail risks that differ from those associated with investments in U.S. markets. Additionally, alternative investments often entail commodity trading, which involves substantial risk of loss.

NO OFFER OR SOLICITATION: The contents of this website: (i) do not constitute an offer of securities or a solicitation of an offer to buy of securities, and (ii) may not be relied upon in making an investment decision related to any investment offering by Perch Financial LLC, Emerson Equity LLC, or any affiliate, or partner thereof. Perch Financial LLC does not warrant the accuracy or completeness of the information contained herein.

envelopephonemap-marker linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram