A real estate investment trust, or REIT, is a company that owns, operates or finances income producing real estate. REITs provide the average investor the opportunity to invest in a professionally managed, diversified portfolio of real estate assets that seeks to produce dividend based income and long-term capital appreciation. Under the United States Internal Revenue Code, a REIT must distribute at least 90% of its annual taxable income to shareholders to maintain REIT status and thereby pay little to no corporate income tax. As a result, REITs tend to pay relatively higher dividends than other types of companies, and dividends earned by shareholders from REITs are generally taxed as ordinary income. Dividends however, are not assured. See Risk Considerations.
REITs can generally be classified as either “equity REITs” or “mortgage REITs”. Equity REITs invest the majority of their assets directly in commercial property and derive their income primarily from rents; equity REITs can also realize capital gains by selling properties that have appreciated in value. Mortgage REITs invest a majority of their assets in real estate mortgages and derive their income primarily from interest payments. For a discussion of the risks associated with RMRM's operation as a commercial mortgage REIT, please click here.