Definition of "Equity trusts"

Jennifer Dreggors real estate agent

Written by

Jennifer Dreggorselite badge icon

Berkshire Hathaway Executives

Same as term REIT: Type of investment company that invests money in mortgages and various types of investment in real estate, in order to earn profits for shareholders. Shareholders receive income from the rents received from the properties and receive capital gains as properties are sold at a profit. REITs have been formed by a number of large financial institutions such as banks and insurance companies. The stocks of many of them are traded on security exchanges, thereby providing investors with a marketable interest in real estate investment portfolio. By law, REITs have to distribute 95 percent of their income to shareholders, and in turn they are exempt from corporate taxes on income or gains. In exchange for this special tax treatment, REITs are subject to numerous qualifications and limitations including:

  1. Qualified asset and income tests. REITs are required to have at least 75% of their value represented by qualified real estate assets and to earn at least 75% of their income from real estate investments.
  2. Shareholder qualifications. Generally, REITs are not permitted to be closely held and must have a minimum of 100 shareholders.
There are three types of REITs. An equity trust invests their assets in acquiring ownership in real estate. Their income is mainly derived from rental on the property. A mortgage trust invests in acquiring short-term or long-term mortgages. Their income is derived from interest from their investment portfolio. A combination trust combines the features of both the equity trust and the mortgage trust. Their income comes from rentals, interest, and loan placement fees. Disadvantages of REITs are potential losses from the market decline and high risk.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Real Estate Terms

The definition of a census-designated place or CDP is rather complex and difficult to understand. We are going to try to explain it as much as possible. Starting from the top and working ...

Characterized by a low volume of real estate sale transactions. ...

Mutually binding property sales contract where the title remains with the seller until the purchase price is paid by the buyer. It is a contract to convey title in the future upon ...

Funds put up by venture capitalists to finance a new business. Often, involves a loan or investment in preferred stock or convertible bonds. A major purpose of seed money is to form a basis ...

Rights allowing an insurer to act against a negligent third party to receive reimbursement for payments made to an insured. ...

The lessee becomes a lessor by subletting the property to a third party. Typically, the sandwich leaseholder does not own or use the property. ...

Sheet metal, often made of aluminum, used to cover a structure's open masonry or wood joints. The purpose of flashing is to prevent the penetration of water as well as to provide a drainage ...

The definition of acquisition cost in real estate is the total cost recorded by a company or individual pertinent to the purchasing of a property. This is the entire amount written down in ...

Process by which a lessee leases the property to another lessee. ...

Popular Real Estate Questions