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Is real estate investment good for small business?
Many companies decide to invest in real estate investment trusts, or REITs.Real estate investment trusts are a wise investment for companies because they have a beneficial tax structure that is similar to the tax structure of a mutual fund.In other words, no corporate tax is required to be paid by the trusts on any earnings that are distributed to the company shareholders.However, in order to qualify for this special tax structure, real estate investment trusts must distribute at least 95 percent of the earnings of the real estate investment trust.
There are three types of real estate investment trusts: equity real estate investment trusts, mortgage real estate investment trusts, and hybrid real estate investment trusts.
Equity real estate investment trusts Equity real estate investment trusts are the most popular form of real estate investment trust.Why?For a number of reasons.Equity real estate investment trusts are generally traded on major stock exchanges.Equity real estate investment trusts are also traded on the over-the-counter market.The shares that are bought in these equity real estate investment trusts are actually a proportional interest in the different properties that the trust owns.It is prohibited for equity real estate investment trusts to negotiate and to enter into any short term property transactions.The major source of earnings for equity real estate investment trusts comes from the rent that is paid on the property. Equity real estate investment trusts are required by law to pay at least 95 percent of earnings to share holders.This means that equity real estate investment trusts yield high dividends.Over the last 15 years, the dividends on equity real estate investment trusts have moved between 6.63 percent and 11.12 percent. In addition to the benefit of high dividend yields, investing in equity real estate investment trusts can actually shelter a percentage of their income through property depreciation.This is one of the main advantages of real estate investment.Equity real estate investment trusts can pass these benefits from tax sheltering on to the trust's shareholders by distributing excess distributions.These distributions are a nontaxable return of capital. So how are the prices of equity real estate investment trust shares determined?They are determined by both real estate market trends and general stock market trends.However, equity real estate investment trusts tend to be more stable than the general stock market.Also, the prices of each share will be influenced by interest rates.The lower the interest rate, the better the equity real estate investment trust functions as a source of income.The lower the interest rate, the higher the price of each share. Equity real estate investment trusts generally diversify types of property.Some are national, some are local, and some focus on only one type of property development, such as retail space or gyms.
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