Printer Friendly

Most frequently asked questions, and answers, about REITs.

With changes in rent regulations and current economic conditions, the time has never been better to sell your property to a Real Estate Investment Trust (REIT). REITs offer property sellers several lucrative advantages not often available through other real estate investments.

If you're considering selling your property to a REIT, here are some things you should know:

Q. Why sell your property to a REIT?

A.:

* To defer capital gains taxes

* To secure steady income

* To resolve partnership and family issues

* For estate planning

Q. What is a REIT?

A. A Real Estate Investment Trust is a form of stock company that owns, operates, or finances real estate and does not pay corporate income taxes as long as it returns at least 90% of its income to shareholders as dividends.

Q: How do you avoid taxes when you sell to a REIT?

A. Essentially, you merge your holdings into a partnership with the REIT, receiving Operating Partnership units. The REIT takes over operating responsibility and liability and you collect a dividend on your OP units as if they were stock.

Q. No taxes?

A. Not until you convert your units to actual stock. There is often a one year-lock up period before you can do so, but generally no limit on how long you can hold the units without incurring a gain--and then only on the portion of the units you trade.

Q. No taxes at all?

A. Gains could be incurred if you take a portion of the sales price in cash, or pay off a mortgage. There are a variety of strategies to minimize or defer these taxes as well.

Q. Why sell to a REIT vs. a 1031 exchange?

A. Both are good strategies, but REITs offer more flexibility. With a 1031 exchange you still own property, retain ultimate liability even on net leased property, and you haven't completely addressed estate planning or partnership issues.

Selling to a REIT, however, securitizes your real estate interest so that partners can make their own financial decisions independently. There is no longer direct liability. Operating units may be used as collateral for other investments. And, your heirs enjoy a stepped-up basis if you die.

Q: What can go wrong?

A. REIT shares are a stock investment. You want to partner with a reliable company with a diverse portfolio, secure dividend, and a relatively low stock price compared with net asset value.

GEORGIA MALONE, PRESIDENT, GEORGIA MALONE & CO., INC.
COPYRIGHT 2004 Hagedorn Publication
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2004, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:Banking & Finance
Author:Malone, Georgia
Publication:Real Estate Weekly
Date:Jan 14, 2004
Words:408
Previous Article:Benefits of private lending.
Next Article:Redefining the role of the real estate investment banker.


Related Articles
E-FILE PUBLICATIONS AND SELF-SELECT PINS.
Questions on REG FD? The SEC Has Answers.
Resources.
BOOK PROBES NUANCES OF LAWS : LEGAL BRIEFS.

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters