REITs and UP-REITs
If you’re looking to get into real estate investing, or you’re looking to move up from daily landlord duties, a REIT may be the answer. REITs, or real estate investment trusts, are companies that own, operate or finance income-producing real estate in a range of property sectors. Allow our team at Diversified Investment Strategies to fill you in more!
REITs are often compared to mutual funds, because they allow individual investors to acquire ownership in commercial real estate portfolios. Each investor receives a share of income from the properties, which could range from apartment complexes, hospitals, office buildings, shopping malls and so on.
There are numerous perks to investing in REITs. They may provide high dividends and long-term capital appreciation. They also may allow for more transparency and diversification than other types of real estate options.
Numerous requirements must be met for a company to qualify as a REIT. For example, the company must invest at least 75 percent of its total assets into real estate, cash or U.S. Treasuries. It must be managed by a board of directors or trustees, have a minimum of 100 shareholders, and have no more than 50 percent of its shares held by five or fewer individuals.
Most REITs are equity REITs, which invest in and own income-producing real estate properties and give investors an opportunity to invest in the portfolio. If you’d like to invest in a REIT, you can purchase shares directly on an open exchange, or you can invest in a mutual fund that specializes in public real estate.
What’s important to note is that you cannot exchange directly into a REIT using a 1031 Exchange, because a REIT is not considered a like-kind exchange. However, one way around that is to exchange first into a DST fractural ownership investment, and then be UPREITED after 18 to 24 months in exchange for shares in the REIT. An UP-REIT is a 721 Exchange.
Not every REIT is available for a 1031 Exchange. Also, once you are in the REIT, you can no longer complete another 1031 Exchange. That is because, as an investor, you now own shares vs. real property. The advantage is that taxes can be paid a little at a time as the shares are sold.
REITs may be a great real estate investment option for you, and UPREITS may be a great exit strategy for any property owners who would prefer to own an interest in an UPREIT’s operating partnership than in real property. You can learn more about REITs and UP-REITs here on our website, or read our blog post about DSTs to see if this may be a better investment option for you.
If you have questions about real estate investing or 1031 Exchanges, or you’re not sure which option is best suited for your needs, contact our team at Diversified Investment Strategies! We’re here to help!
Bryan Hakola
Diversified Investment Strategies
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