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Real estate investments. Equity or debt?

Real Estate Investment Trusts (REITs)

A real estate investment trust, or REIT, is a tax designation for a corporate entity investing in real estate. It reduces or eliminates corporate income taxes. In return, REITs are required to distribute 90% of their income, which may be taxable, into the hands of the investors.

The REIT structure was designed to provide a similar structure for investment in real estate as mutual funds provide for investment in stocks. Like other corporations, REITs can be publicly or privately held. Public REITs may be listed on public stock exchanges like shares of common stock in other firms.

REITs can be classified as equity, mortgage, or hybrid. The key statistics to look at in a REIT are its net asset value (NAV), adjusted funds from operations (AFFO) and cash available for distribution (CAD). REITs face challenges from both a slowing U.S. economy and the global financial crisis, depressing share values by 40 to 70 percent in some cases.

Alternative Investments

An alternative investment is an investment product other than traditional investments such as stocks, bonds and cash. Some of the alternative investments we like to use at Marcheso & Associates include Real Estate Investment Trusts (REITs), Oil & Gas Exploration, and commodities investments such as Gold & Silver. Alternative investments are attractive to investors because their returns tend to have a low correlation with those of standard asset classes. However, most alternative investments are held by institutional investors or accredited, high-net-worth individuals because of their complex nature, limited regulations and relative lack of liquidity.

1031 Exchanges

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