Real Estate Investment Trusts – REIT A real estate investment trust also known as REIT is a type of tax designation for corporations that invest in real estate. Its aim is to eliminate or lower corporate tax. Under this arrangement, ninety percent of all taxable income of trusts should be distributed among investors. The structure of real estate investment trusts is similar to that of mutual funds. In Canada, REITs are not taxed if their net taxable income is distributed among shareholders. The Conservative government did not include them in the income trust tax legislation from 2007. Most real estate income trusts have limited liability. REITs are trusts that invest in various types of real estate-related assets and real estate, including hotels, office buildings, shopping centers, and secured mortgages. For most people, it is difficult to save enough money to invest in commercial real estate. Real estate investment trusts allow them to do this by pooling the resources of a number of investors. In essence, they are corporate entities that manage portfolios of mortgages and real estate properties. The good news is that publically traded shares of REITs can be purchased by anyone. The benefit of buying shares is that holders enjoy real estate ownership, avoiding the expenses of being a landlord. There are further advantages to investing in a real estate investment trust, namely diversity and liquidity. In contrast to real estate, shares are easily and quickly sold. Holders take less financial risk because the trust invests in a portfolio of mortgages and properties. How can you purchase shares? They are traded on the stock market just like other stock. Some popular REITs in Canada are Can Apartment Properties, Boardwalk Real Estate, Colloway Real Estate Trust, Legacy Hotels, and others. They are an important vehicle for investment in real estate in Canada. Before you decide to invest in any of them, however, there are some questions to consider. What are the risk factors? Are there any financial reporting considerations to keep in mind? How will you receive your returns? Those who are new to real estate investment trusts may also want to look into the iShares CDN REIT Index ETF. REITs in Canada are of two different types. One type takes a diversified approach and invests in a mixture of industrial and commercial properties. The other has a more focused investment strategy, specializing in one type of real estate. Because trusts have grown in popularity, the number of sector-specific entities has increased. Thus, there are trusts that focus on the nursing and healthcare industries, the hotel industry, and on residential and commercial real estate. If you decide to invest, there are a number of benefits to this. First, investors enjoy a predictable and stable income and a percentage of it is normally tax-deferred. REITs can also serve as an inflation hedge. The reason is that in the long run, rental rates increase as to move with inflation, meaning that they adjust to reflect the cost of living. Thus, REITs are relatively resistant to inflation and less vulnerable to the risks of devaluation. The value investors get is in the form of future share value appreciation and dividend income. Given that REITs often receive their income from commercial real estate with long lease periods, investors enjoy a predictable stream of revenue. Nontaxable return is yet another benefit. Depending on the annual earnings and distribution policy of the real estate investment trust, some portion of the dividend may be in the form of nontaxable return. There are two benefits to this. First, investors are not required to pay taxes on the portion of the dividend that has been distributed in the current tax year. Second, this amount is taxed only after the stock is sold.