Hey. Just want to understand the process about how someone would form a REIT, or if anyone has experience with putting something together like that.
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Sorry if this comes off harsh, but please don't. Worst fucking possible time to do so.
What indicators do you look at to determine this?
Depending on the jurisdictions different rules will apply. In the United States, the IRS specifies:
1. At least 75% of the REIT's assets must be real estate assets.
2. At least 75% of the REIT's gross income must come from real estate-related sources.
3. The REIT must have at least 100 shareholders.
4. No more than 50% of the REIT's shares can be held by five or fewer individuals during the last half of each taxable year.
5. The REIT must distribute at least 90% of its taxable income to shareholders as dividends annually.
In terms of Process, the usual is path is similar to any other company:
Define the REIT's structure: usually as a corporation or a trust.
Drafting Governing Documents: articles of incorporation (for a corporation) or a trust agreement (for a trust).
Appoint Directors or Trustees.
Capitalization and Funding.
Register the REIT.
Set Governance, Compliance and Reporting structures.
Start Operating/acquiring RE assets.
thank you for this.
Just as a follow up on REITs, when do people usually do it in the investment process? Do they wait until they have several commercial properties, just a view, just one? Would it make sense for someone investing in residential to form?
It really depends on the investor's objectives. Some investors do it with just a single property in their portfolio. Forming a REIT doesn't depend on the number/size of the properties the company/trust owns. REITs are usually launched by investors seeking additional capital and tax benefits. It's just a different investment vehicle that some investors prefer for its flexibility, divisibility and its tax benefits.
There are many Resi REITs launched by investors seeking all the above mentioned.
okay, thanks.
From there, REITS can be publicly traded or not-traded, same as stock, correct?
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