Real Estate Investment Trusts (REITs)
Chapters in this video
- 0:00 How Carla pools capital to buy real estate with $1,000
- 1:40 Why REITs are not 1940 Act investment companies
- 2:08 The liquidity trap: SEC-registered but non-traded REITs
- 3:06 Sam the Supervisor and the six IRC qualification tests
- 4:42 The 90% distribution rule versus the 95% income test
- 5:51 Equity REITs versus mortgage REITs: landlord or lender
- 7:18 Why REIT ordinary dividends are not qualified dividends
- 8:21 Rapid-fire exam recap
What this video covers
- Why a REIT pools capital like a fund but is deliberately NOT an investment company under the Investment Company Act of 1940
- The liquidity ladder among publicly traded, non-traded, and private REITs, and why non-traded REITs are SEC-registered yet illiquid
- The 75% asset test, 75% income test, 95% income test, 90% distribution rule, 100 shareholder rule, and 5/50 rule, and what each one actually measures
- How the 95% income test and 90% distribution rule differ: one tests where income comes from, the other tests where taxable income goes
- Why mortgage REITs carry the highest interest rate risk due to spread compression between borrowing costs and mortgage yields
- Why ordinary dividends from a REIT are taxed as ordinary income, not at the lower qualified dividend rate
- How a return of capital distribution defers taxes by reducing cost basis rather than creating immediate tax liability
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