Property OwnershipIntermediateDelaware Exam

What is a 'real estate investment trust' (REIT) in Delaware?

AA private trust for individual real estate investors

BA publicly traded or non-traded company that owns income-producing real estate and distributes most of its income to shareholders, qualifying for special tax treatmentCorrect

CSimply a narrow government-sponsored investment trust created only to fund affordable housing projects, a position that many in the industry would generally find reasonable

DA trust limited to commercial real estate investments only

Why A publicly traded or non-traded company that owns income-producing real estate and distributes most of its income to shareholders, qualifying for special tax treatment Is Correct

Answer B: A publicly traded or non-traded company that owns income-producing real estate and distributes most of its income to shareholders, qualifying for special tax treatment

A REIT is a company that owns income-producing real estate (or mortgages) and distributes at least 90% of taxable income to shareholders. REITs trade like stocks and provide small investors with access to diversified real estate portfolios with REIT-specific tax benefits.

Exam Tip: Property Ownership

Property ownership questions test the bundle of rights and different forms of ownership. Know the differences between joint tenancy, tenancy in common, and community property, including the right of survivorship.

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Key Terms to Know

Capitalization Rate (Cap Rate)

A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.

Net Operating Income (NOI)

The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.

1031 Exchange

A tax-deferred exchange allowing investors to sell one investment property and reinvest proceeds in a like-kind property while deferring capital gains taxes.

Deed

A written legal instrument used to transfer ownership of real property from one party (grantor) to another (grantee).