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[时间:2011/4/12 16:05:59  查看次数:3080  作者:上海房地产律师  来源:原创]

[Important Note: the English version of this article is cited from http://www.about.com/, whose author is Joshua Kennon. The Chinese version is translated from the English version by Jason Tian, the feature attorney-at-law on this website. Please bear in mind, that the contents in ths article is about the REITs in the USA. There has not been any geniune REITS in China so far due to the drawbacks in China's legal system.]
Real Estate Investing Through REITs

Prior to the onset of the industrial revolution, wealth and power was measured primarily in terms of the amount of land owned by an individual or family. Although the twentieth century saw the rise of securitization and the resulting increase in stock and bond ownership, real estate investing can still prove a profitable option for those who are actively engaged in an asset allocation program or just looking to diversify their current portfolio. Real estate investment trusts, or REITs, can be a convenient way for the average investor to profit without the hassle of direct property acquisition. That is why we included this five-page essay in our Beginner's Guide to Real Estate Investing.

Prior to 1960, only wealthy individuals and corporations had the financial resources necessary to invest in significant real estate projects such as shopping malls, corporate parks and health care facilities. In response, Congress passed the Real Estate Investment Trust Act of 1960. The legislation exempted these special-purpose companies from corporate income tax if certain criterion were met. It was hoped that the financial incentive would cause investors to pool their resources together to form companies with significant real estate assets, providing the same opportunities to the average American as were available to the elite. Three years later, the first REIT was formed.

The original legislation had some significant drawbacks, however, in that it required the executives in charge of the business to hire third parties to provide management and property leasing services. These restrictions were lifted in the Tax Reform Act of 1986. Thirteen years later, in 1999, the REIT Modernization Act was passed. The law allows REITs to form taxable subsidiaries in order to provide specialized services to tenants that normally fall outside the purview of real estate investing. Although the law still has some limitations as to the types of services that can be offered, it is expected that the quality of service at REIT-managed properties will improve significantly as a result of its passage.

Requirements for REIT status

According to Ralph Block in Investing in REITs: Real Estate Investment Trusts, every REIT must pass these four tests annually in order to retain its special tax status:
根据REITS投资专家Ralph Block,为了保持其免税地位,每个房地产投资信托基金必须每年通过下列四项测试:

1.“The REIT must distribute at least 90 percent of its annual taxable income, excluding capital gains, as dividends to its shareholders.

2.The REIT must have at least 75 percent of its assets invested in real estate, mortgage loans, shares in other REITs, cash, or government securities.

3.The REIT must derive at least 75 percent of its gross income from rents, mortgage interest, or gains from the sale of real property. And at least 95 percent must come from these sources, together with dividends, interest and gains from securities sales.

4.The REIT must have at least 100 shareholders and must have less than 50 percent of the outstanding shares concentrated in the hands of five or fewer shareholders.”

In addition to the prevention of double-taxation, REITs offer numerous other benefits which include:

Professional management

In most cases, the investor that buys a rental property is left to her own devises. REITs allow the investor the opportunity to have her properties managed by a professional real estate team that knows the industry, understands the business and can take advantage of opportunities thanks to its ability to raise funds from the capital markets. The benefits are not limited to the financial prowess of the management team. Owners of REITs aren’t going to receive phone calls at three a.m. to fix an overflowing toilet.

Limitation of personal risk

REITs can significantly limit personal risk. How? If an investor wanted to acquire real estate, it is likely he will take on debt by borrowing money from friends, family, or a bank. Often, he will be required to personally guarantee the funds. This can leave him exposed to a potentially devastating liability in the event the project is unsuccessful. The alternative is to come up with significant amounts of capital by reallocating his other assets such as stocks, bonds, mutual funds, and life insurance policies. Neither alternative is likely to be ideal.

Purchasing a REIT, on the other hand, can be done with only a few hundred dollars as share prices are often as low, if not lower, than equities. An investor that wants to invest $3,000 in real estate will reap the same rewards on a pro-rated basis as those who want to invest $100,000; in the past, it simply wasn’t possible to get this kind of diversification in the real estate asset class without taking on partners or using leverage.


Unlike direct property ownership, a REIT offers liquidity and daily price quotations. Many investors mistake this for increased risk. After the average real estate investor has acquired a house, apartment building or storage unit, he becomes primarily interested in the future rental income prospects, not the potential sale value of the asset if he put it back on the market. Indeed, if the investor holds the property for twenty years, he is likely to have lived through significant boom and busts in the real estate cycle. In most cases, it is safe to assume that because of the lack of daily quoted resale value, the investor has never stopped to consider that his real estate fluctuates just as would any common stock (albeit to a much smaller degree.) In this case, the lack of quoted price is mistaken for stability. As Benjamin Graham said in his 1970’s edition of The Intelligent Investor:

“There was then [during the Great Depression] a psychological advantage in owning business interests that had no quoted market. For example, people who owned first mortgages on real estate that continued to pay interest were able to tell themselves that their investments had kept their full value, there being no market quotations to indicate otherwise. On the other hand, many listed corporation bonds of even better quality and greater underlying strength suffered severe shrinkages in their market quotations, thus making their owners believe they were growing distinctly poorer. In reality the owners were better off with the listed securities, despite the low prices of these. For if they had wanted to, or were compelled to, they could at least have sold the issues – possibly to exchange them for even better bargains. Or they could just as logically have ignored the market’s action as temporary and basically meaningless. But it is self-deception to tell yourself that you have suffered no shrinkage in value merely because your securities have no quoted market at all.”-Page 107
田杰 律师
中国石油大学英语学士,华东政法大学法律硕士,曾在Clifford Chance上海代表处任高级翻译,在中伦上海分所和中银上海分所任专业房地产律师。现为北京大成(上海)律师事务所执业律师,主营房地产交易、投融资业务[详细]

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