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This week, Devin and John welcome Brandon Renfro to talk about Real Estate Investment Trusts (REIT). Brandon is a former financial advisor and now teaches finance at the university level, and it’s his second time here on the show!
REITs have been in the news, because of the changes to the tax law and because they are paying higher income than most other investments out there right now.
A REIT is a packaged investment product, like a mutual fund, that is invested in things tied to real estate. There are a couple of different types of REITs that you can buy: there are equity REITS and there are mortgage REITS. An equity REIT owns physical property, perhaps a strip mall or an apartment complex or an office building. Most folks are invested in equity REITs, and there are three major kinds of REITS: listed REITs, non-listed REITs, and private REITs.
To qualify as a REIT with the IRS, the trust has to agree to pay out 90% of the net income to the individuals who have purchased into the trust. This allows them to avoid a lot of corporate income tax. This is one of the reasons why REITs can pay higher income.
Is a REIT a good choice for you? Brandon reminds prospective REIT investors not to forget that a REIT is a real estate investment. If you are using a REIT to create income, be sure that you take into consideration the fact that it is still based in real estate. You’re really fundamentally changing your risk exposure.
On the upside, a listed REIT is more liquid than owning individual properties. You aren’t tied up in physical real estate.
- The dangers of the return of capital as part of the dividends
- Why more isn’t better
- Why you need to understand what is in the REIT you are buying
Resources mentioned in this episode:
Brandon’s website at https://www.brandonrenfro.com/
Big Picture Retirement Episode 36: All About Bonds with Brandon Renfro
Big Picture Retirement Episode 72: The Danger of Chasing Dividends With Andrew Comstock
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Every few weeks, Devin and John answer reader questions during the show. Send your questions to firstname.lastname@example.org.