REIT Investment Characteristics
Chapters in this video
- 0:00 The 90% mandatory distribution rule and REIT tax treatment
- 2:23 Equity REITs versus mortgage REITs: income sources and inflation protection
- 3:56 Listed REITs versus non-traded REITs: liquidity and fee transparency
- 5:23 Interest rate risk chain and distribution risk traps
- 6:38 Rapid-fire exam recap
What this video covers
- Why the mandatory 90% distribution rule makes REITs an income-focused investment, and the tax consequence if a REIT retains earnings like a standard corporation
- How equity REITs earn rent from physical properties and act as a partial inflation hedge through rising property values and rents
- Why mortgage REITs are highly sensitive to interest rate changes, hold fixed-rate paper with no inflation protection, and perform best in stable or declining rate environments
- How listing status, not REIT type, determines liquidity: listed REITs trade like stocks, while non-traded REITs have very low liquidity and poor fee transparency
- What distribution risk means for non-traded REITs, and why a steady yield may mask distributions funded by borrowed money or return of capital rather than operating income
- The full chain of interest rate risk for mortgage REITs: rising rates increase borrowing costs, reduce profitability, and drive down the value of existing mortgage holdings
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