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REIT Qualification Requirements Explained

To qualify as a REIT, a company must meet specific criteria including being structured as a corporation or business trust, having at least 100 shareholders, and distributing at least 90% of taxable income as dividends. Additionally, a significant portion of income and assets must come from real estate sources. There are various types of REITs, including equity, mortgage, hybrid, private, publicly traded, and public non-traded REITs, each with distinct characteristics and investment strategies.

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11 views3 pages

REIT Qualification Requirements Explained

To qualify as a REIT, a company must meet specific criteria including being structured as a corporation or business trust, having at least 100 shareholders, and distributing at least 90% of taxable income as dividends. Additionally, a significant portion of income and assets must come from real estate sources. There are various types of REITs, including equity, mortgage, hybrid, private, publicly traded, and public non-traded REITs, each with distinct characteristics and investment strategies.

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We take content rights seriously. If you suspect this is your content, claim it here.
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How Does a Company Qualify as a REIT?

To qualify as a REIT, a company has to meet specific


requirements as mentioned below.

1. Entity Type – Must be structured as a business trust or a corporation.


2. Share Transferability – Shares must be fully transferable so investors can freely
buy/sell.
3. Management – Managed by a board of directors or a team of trustees.
4. Minimum Shareholders – At least 100 shareholders required.
5. Ownership Rule – No more than 50% of shares can be held by 5 or fewer
individuals in any tax year.
6. Dividend Payout – Must distribute at least 90% of taxable income as dividends to
shareholders.

7. Source of Income – At least 75% of gross income must come from real estate
sources (mortgage interest, rents, etc.).
8. Subsidiary Stock Cap – No more than 20% of total assets can be stock in taxable
REIT subsidiaries.

9. Real Estate Asset Minimum – At least 75% of total investment assets must be in
real estate.
10. Income Investment Requirement – At least 95% of total income must be invested
(in real estate or qualifying assets).

Types of Real Estate Investment Trust


(REIT)

The following is a list of the different types of REITs.

Equity

This type of REIT is among the most popular ones. Typically, it is


concerned with operating and managing income-generating
commercial properties. Notably, the common source of income
here is rents.

Mortgage
Also known as mREITs, it is mostly involved with lending money to
proprietors and extending mortgage facilities. Further, REITs tend
to acquire mortgage-backed securities. Mortgage REITs also
generate income in the form of interest accrued on the money
they lend to proprietors.

Hybrid

This option allows investors to diversify their portfolio by parking


their funds in both mortgage REITs and equity REITs. Hence, both
rent and interest are the sources of income for this particular kind
of REIT.

Private REITs

These trusts function as private placements, which cater to only a


selective list of investors. Typically, private REITs are not traded
on National Securities Exchanges and are not registered with
the SEBI.

Publicly Traded REITs

Typically, publicly-traded real estate investment trusts extend


shares that are enlisted on the National Securities Exchange and
are regulated by SEBI. Individual investors can sell and purchase
such shares through the NSE.

Public-non Traded REITs

These are non-listed REITs which are registered with the SEBI.
However, they are not traded on the National Stock Exchange.
Also, when pitted against public non-traded REITs, these options
are less liquid. Plus, they are more stable as they are not
subjected to market fluctuations.

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