Frequently Asked Questions
How are REITs Different from Limited Partnerships?
REITs are not partnerships, although as is the case with other corporations, REITs use partnerships to engage in joint ventures. There are important organizational and operational differences between REITs and limited partnerships.
One of the major differences between REITs and limited partnerships is how annual tax information is reported to investors. An investor in a REIT receives a traditional IRS Form 1099 from the REIT, indicating the amount and type of income received during the year. An investor in a partnership receives a very complicated IRS Schedule K-1. Also a REIT investor must file less state tax returns than required by a partnership investment.
The oversight/corporate governance features of a REIT are believed to be far superior to those of a partnership.
Other important differences between REITs and limited partnerships are shown in the chart below.
| |
REITs |
Partnerships |
| Liquidity |
Yes. The shares of most REITs are listed and traded on stock exchanges |
No. When liquidity exists, generally much less than
REITs |
| Minimum Investment Amount |
None |
Typically $2,000-$5,000 |
| Reinvestment Plans |
Yes, including some at discounts |
No |
| Ability to Leverage Property Investments without Incurring UBIT for Tax-Exempt Accounts |
Yes; this makes REITs suitable for individual IRAs, 401(k), and other pension plans |
No |
| Investor Control |
Yes, investors re-elect directors |
No, controlled by general partner who cannot be easily removed by limited partners |
| Independent Directors |
Yes, stock exchange rules or state law typically requires majority to be independent of management |
No |
| Beneficial Ownership |
At least 100 shareholders required; most REITs have
thousands |
Shared between any number of limited and general partners |
| Ability to Grow by Additional Public Offerings of Stock or Debt |
Yes |
Rarely |
| Ability to Pass Losses on to Investors |
No |
Yes |
| Information to Investors |
Form 1099 |
Schedule K-1 |
| Subjects investors to state taxes |
|
|
| |
Only in state where investor resides |
Yes, for all states in which it owns properties |
How Many REITs Are There?
There are about 300 REITs operating in the United States today. Their assets total over $300 billion. About two-thirds of these trade on the national stock exchanges:
- New York Stock Exchange - 149 REITs
- American Stock Exchange - 27 REITs
- NASDAQ National Market System - 12 REITs
In addition, there are dozens of REITs that are not traded on a stock exchange. The balance of this publication discusses publicly-traded REITs.
Information from The National Association of Real Estate Investment Trusts |
