A real estate investment trust, or REIT, is a company that buys, develops, manages and sells real estate assets. There are three types of REITs; they are equity REITs, mortgage REITs, and hybrid REITs. An equity REIT is a corporation that purchases, owns and manages real estate properties; it does not own or originate real estate loans. It may also develop properties. A mortgage REIT is a corporation that purchases, owns and manages real estate loans; it does not own real estate properties. It may or may not originate commercial and/or residential loans. A hybrid REIT is a corporation that purchases, owns and manages both real estate loans and real estate properties. It has the qualities of both an equity and mortgage REIT which is why it is referred to as a hybrid. One of the most distinguishing characteristics of a REIT is that they are required to distribute at least 95% of taxable income to shareholders. REITs allow participants to invest in a professionally-managed portfolio of real estate assets. This is important because prior to Congress's creation of REITs only extremely rich individuals were able to benefit from ventures in the real estate market. By pooling assets together in a manner similar to that of a mutual fund, REITs allow the everyday investor the chance to invest in real estate properties. The main benefit of a REIT is that it is exempt from double taxation. The normal corporation is taxed on earnings, and then when dividends are paid, the individual receiving the dividend is taxed. REITs can deduct dividends distributed from taxable income. This results in only one level of taxation. The main disadvantage of a REIT is that since nearly all earnings are distributed as dividends, the trust must find capital to reinvest into the business from other areas. These funds are usually raised by investments in the market, and through the capital gains realized from the sale of the REITs assets.The second method...
