Where do REITs get their money?
REITs make their money through the mortgages underlying real estate development or on rental incomes once the property is developed. REITs provide shareholders with steady income and, if held long-term, growth that reflects the appreciation of the property it owns.
How do REITs fund acquisitions?
The normal financing pattern for REITs is to finance real estate acquisitions with unsecured credit and then refinance the debt with common or preferred stock offerings or senior notes and subordinated debentures because they lack the ability to retain much cash (95\% of income must be distributed to shareholders).
Who owns the property in a REIT?
The REIT typically is the general partner and the majority owner of the operating partnership units, and the partners who contributed properties have the right to exchange their operating partnership units for REIT shares or cash.
What does Dave Ramsey say about REITs?
real estate as an investment class, he trashed REITs as having terrible returns, mainly because of excessive management fees. He said there wasn’t a REIT around that garnered anywhere near a 12\% return over the past 10 years, like “good growth mutual funds,” which according to Dave easily return 12 to 15\% a year.
Why do REITs raise capital?
Well, REITs tend to rely on the capital markets in order to buy or build new properties as they primarily raise money by selling shares on the markets or by taking on debt. This formula works great when the markets are in a good mood, but the strategy can come apart at the seams when the markets take a tumble.
What happens when a REIT sells a property?
Capital gains distributions occur when a REIT sells real estate assets and realizes a profit. Unlike ordinary dividends, these distributions are treated like any other capital gain and subject to preferential rates.
Do REITs have capital appreciation?
REITs are total return investments. They typically provide high dividends plus the potential for moderate, long-term capital appreciation. Long-term total returns of REIT stocks tend to be similar to those of value stocks and more than the returns of lower risk bonds.
Do REITs pay income taxes?
As REITs do not pay taxes at the corporate level, investors are taxed at their individual tax rate for the ordinary income portion of the dividend. The portion of the dividend taxed as capital gains arises if the REIT sells assets.