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REIT’s

A real estate investment trust (REIT) allows investors to pool funds for participation in real estate ownership or financing. It is required by law to distribute 90 percent of its annual income to shareholders or to reinvest the capital to improve its portfolio. Investors contribute capital, which is used to fund a variety of real estate projects. In return, investors can receive a return on their capital in both the payment of dividends, and an increase in equity through growth of the company.

Because many professional advisors recommend an investment portfolio that has some portion allocated to investment real estate, REIT’s have gained a high degree of popularity. REIT’s provide limited liability, centralized management and liquidity; the latter is achieved due to a significant secondary market, as a number of REIT companies are traded on the national stock exchanges. Private REIT’s are less liquid. REIT’s do not, however, provide Section 1031 tax-deferral for investors desiring to either exchange “into” or “out of” a REIT.

Business Plan

Goal: Purchase interests in high-quality real estate that will provide immediate income from tenant rents and will appreciate in value so that they can ultimately be sold at a profit.

Assumptions: Real estate values will fluctuate based on economic and environmental factors.

Liquidity: Investment life of 3-10 years. Public REIT’s that are privately traded are illiquid for generally 12 months. Thereafter, the investor may incur a surrender charge.

No Capital Calls

An investor’s liability is limited to their original capital contribution.