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Reeth or real estate investment trusts were created by Congress in 1960 to give all Americans the opportunity to benefit from investing in income-producing real estate REITs allow anyone to own or finance properties in the same way shareholders benefit by owning stocks and other corporations the stockholders of a read earn a share of the income produced through real estate investment without actually having to go out and buy or Finance property this video provides some insight into what REITs are and how they work the REIT industry has a diverse profile which offers many benefits REITs often are classified in one of two categories equity REITs or mortgage REITs equity REITs owned a wide range of property types including offices shopping centers hotels apartments and much more equity REITs derive most of their revenue from rent on those properties mortgage rates may finance both residential and commercial properties mortgage REITs get most of their revenue from interest earned on their investments in mortgages or mortgage-backed securities in addition REITs may be publicly registered with the SEC and have their shares listed and traded on major stock exchanges or they may be publicly registered with the SEC but not have their shares listed or traded on major stock exchanges or they may be private companies not registered with the SEC and not listed or traded on a stock exchange regardless of the type REITs operate under a specific set of rules established by Congress a REIT is an entity that is modeled after mutual funds is treated by the Internal Revenue Code as a corporation must be widely held by shareholders must primarily own or finance real estate and must own its real estate with a long-term investment horizon the IRS implements the REIT rules and oversees what qualifies as a read the Internal Revenue Code requires a REIT to adhere to the following essential rules at least 75% of the Corporations income must be earned from real estate as rent real estate interest or from the sales of real estate assets at least 75% of the Corporations assets must be real estate assets at least 95 percent of income must be passive REITs are required to distribute at least 90 percent of taxable income annually to shareholders as taxable dividends in other words a week cannot retain its earnings like a mutual fund a reap receives a dividends paid deduction so no tax is paid at the entity level if 100 percent of income is distributed reach shareholders pay taxes on dividends at ordinary rates versus the lower qualified rate the top ordinary rate is now thirty nine point six percent over time REITs and the rules and regulations that govern them have evolved to meet the changing needs of the real estate industry and the broader economy but throughout that process REITs have remained true to the mission laid out by Congress in 1960 to make the benefits of income producing real estate accessible to anyone and everyone and that's still how they work today [Music]