Podcast: The Good and Bad of REITs

Key Points:

  • REITs allow small investors a way into real estate.
  • All the tax benefits of real estate are included with REITs.
  • There are pitfalls to creating a REIT that will meet the requirements.


On this episode of Weaver Beyond the Numbers, Real Estate edition, Howard Altshuler, Partner-in-Charge, Real Estate Services for Weaver, and Rob Nowak, Partner, Tax Services for Weaver, were joined by Charlie Anastasia, Tax Partner for Weaver, for some insights into REITs (real estate investment trusts).

REITs give individuals the ability to invest in real estate and receive the same tax benefits with much less capital. Instead of buying a building, investors can buy into a REIT for a portion of the ownership.

What are the basic ownership or entity considerations? REITs are formed as corporations but treated as pass-through type entities, which means certain risks involved. Quarterly asset tests and annual income tests apply strict requirements for REITs and if these tests are failed there is the potential for paying 100% excise tax. Anastasia recommends talking to a tax accountant to make sure the REIT is viable and passes the tests.

Anastasia goes on to detail how these tests look at “good” and “bad” income and how infrastructure upgrades to a residential or commercial property fit into the qualification tests. How do ancillary services such as fiber optics, exercise rooms, and even data centers impact the rental revenue stream? Rental income is considered “good” according to the requirements and these ancillary services will need to be evaluated to make sure the REIT is viable.

REITs allow smaller investors the ability to receive all the tax benefits of real estate purchases, making them a great opportunity for people looking to add real estate to their portfolio.

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