Definition of "Equity trusts"

Jennifer Dreggors real estate agent

Written by

Jennifer Dreggorselite badge icon

Berkshire Hathaway Executives

Same as term REIT: Type of investment company that invests money in mortgages and various types of investment in real estate, in order to earn profits for shareholders. Shareholders receive income from the rents received from the properties and receive capital gains as properties are sold at a profit. REITs have been formed by a number of large financial institutions such as banks and insurance companies. The stocks of many of them are traded on security exchanges, thereby providing investors with a marketable interest in real estate investment portfolio. By law, REITs have to distribute 95 percent of their income to shareholders, and in turn they are exempt from corporate taxes on income or gains. In exchange for this special tax treatment, REITs are subject to numerous qualifications and limitations including:

  1. Qualified asset and income tests. REITs are required to have at least 75% of their value represented by qualified real estate assets and to earn at least 75% of their income from real estate investments.
  2. Shareholder qualifications. Generally, REITs are not permitted to be closely held and must have a minimum of 100 shareholders.
There are three types of REITs. An equity trust invests their assets in acquiring ownership in real estate. Their income is mainly derived from rental on the property. A mortgage trust invests in acquiring short-term or long-term mortgages. Their income is derived from interest from their investment portfolio. A combination trust combines the features of both the equity trust and the mortgage trust. Their income comes from rentals, interest, and loan placement fees. Disadvantages of REITs are potential losses from the market decline and high risk.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Real Estate Terms

People often use the term in their everyday discourse, yet many wonder what the meaning of common law genuinely implies. Common law refers to a system of jurisprudence based on court ...

A line on a map or drawing showing equal ground elevation points. See also contour map. ...

Relationship between individuals or entities out of which exists a mutual interest. An example is a privity of contract among the contracting parties concerning the actions each are to take. ...

Federal agency that aids veterans of the armed forces. For example, it guarantees a home loan for up to a predetermined dollar amount or percentage of the loan balance, whichever is less. ...

Goods that are freely substitutable. It is goods of a given class or type, any unit of which is as acceptable as another, and capable of satisfying an obligation expressed in terms of the ...

Mutually binding property sales contract where the title remains with the seller until the purchase price is paid by the buyer. It is a contract to convey title in the future upon ...

Time period for which one expects to keep property such as a real estate investment. ...

Method of construction where part of the structure is supported by a cantilever beam or truss. ...

Accelerated depreciation method in which the amounts recognized in the early years of the property's useful life are greater than those recognized in the later years. The SYD is found by ...

Popular Real Estate Questions