Best Financial Advisors in Issaquah, WA

A Real Estate Investment Trust (REIT) is a trust that makes money from income-generating real estate. You can think of it as the real estate version of a mutual fund. There are also index funds of REI Ts that allow you to own a low-fee, broadly-diversified portfolio of REI Ts (and therefore of real estate) similar to the way you can own stocks or bonds via index funds. Vanguard's VNQ is an example of a REIT index fund. How do REI Ts work? You can read more here, but in short, REI Ts finance, lease, or own real estate, and distribute any profits as dividends to investors. Many REI Ts trade like stocks or (when bundled together) like mutual funds. They essentially have to pay out the bulk (90%) of their income each year to shareholders, hence why their income generation is high relative to investments like stocks that are not required to distribute income. How are REI Ts taxed? REIT dividends are taxed at regular income rates One negative aspect of REI Ts is that instead of their dividends being 'qualified' for long-term capital gains rates on shares held for a while (like stock funds), the income is taxed at regular income tax rates (same as for bond funds, or bank interest.) Per the Tax Cuts and Jobs Act of 2017, you might get some of that back in the form of the 20% QBI deduction. Say your tax bracket is 24%. 20% off that equals an effective rate on REIT dividends of 21.6%...