What Is a Real Estate Trust?

What Is a Real Estate Trust?

A real estate investment trust is an entity through which a person invests in large-scale, income-producing real estate. There are specific requirements of real estate investment trusts which make them unique investment instruments. Many such trusts are publicly traded on the stock exchange.

A person should understand the components of a real estate investment trust. In most cases, it is a company that owns and sometimes operates income-producing real estate properties. These properties include office buildings, shopping malls, apartments, hotels, warehouses and mortgages. While there is a wide range of property types a real estate investment trust may own, there is usually a focus on a specific niche.

A real estate investment trust is typically formed due to its tax advantages. Each year, the entity must inform its shareholders how dividend distributions should be taxed. The types of income can include ordinary income, return of capital or capital gains. In addition, the entity must maintain certain organizational requirements to maintain its tax status. For instance, there must be a minimum of 100 shareholders after the first year of operations, the entity must be taxable as a corporation if not for its REIT status and the entity must invest 75 percent of its assets in real estate assets.