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Both public REITs and regular stocks are similar in that you can buy and sell them at s stock exchange. Like all stocks you own for example, Nvidia is into computer technology and Starbuck in the coffee business, REITs are into real estate properties.
However, a REIT differs in that the company itself has a special legal structure which minimize its’ tax liability.
The company must have a minimum of 75% of its total assets as cash or in real estate or US Treasuries.
A minimum of 75% of the company’s gross income must be sourced from mortgage interest, real estate sales or rents.
The company must pay at least 90% of tis taxable income to its shareholders as dividends.
The company must have a minimum of 100 shareholders after its first year as a REIT and no more than 50% of its shares held by five or few individuals. The 5/50 rule and 100 shareholders ensure less concentrated ownership and thereby less biased decision making. Additionally, it helps a REIT to display high quality and transparent governance of operations, prevents issues such as governance fraud, misreporting and financial fraud.
