Real Estate Investment Company

Definition of "Real estate investment company"

Same as term real estate investment trust (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

Secondary written agreement to purchase real property in the event the initial contract is not signed. ...

Drain facility usually underground for waste and water disposal consisting on connected pipes. ...

Local group of real estate brokers who are members of the State and National Board of REALTORS®. Meets regularly with their membership and helps determine licensing requirements as well as ...

Penalty charge in order to cure a previous wrong. ...

Choosing alternative real estate investment instruments having different risk-return features. Diversification can be done by regions and types of real estate. Diversification provides a ...

An administrator appointed by the government or the courts to administer the laws relating to a government agency or court. A commissioner is a part of a government or court commission. ...

Most people seem to be baffled by the fundamental terminology in real estate: brokers vs. agents vs. employing brokers vs. mortgage brokers, etc. Let us provide some clarity! The primary ...

Linkage in real estate means the proximity of a particular piece of land to its originally intended function. In addition, linkage can refer to the time and distance between a ...

Looking to understand what is Ginnie Mae? You’ve been hearing about it and knows not what it means. Let us help with the most succinct Ginnie Mae definition possible: Ginnie Mae is ...

Popular Real Estate Questions