What is a REIT and why is it the smart choice?
A REIT, or Real Estate Investment Trust, is a type of real estate company created to give all investors, not just the affluent, the opportunity to invest in a diversified portfolio of income-producing real estate through the purchase and ownership of stock. Through the payment of required annual dividends, REIT shareholders receive at least 90% of the income generated by the real estate investments held by the REIT, without having to source, buy and manage property.
Investing through a REIT provides investors with a number of advantages. Under the “investor friendly” Israeli tax rules governing REITs, a REIT must meet the following criteria:
be publicly traded on the Tel Aviv Stock Exchange,
have assets with a gross value of at least 200 million NIS,
primarily own income producing real estate,
distribute annually at least 90% of its ordinary income and 100% of its capital gains; and
limit leverage to no more than 60% of the value of its real estate assets and 20% of the value of its non-real estate assets.
These requirements protect investors by providing them with liquidity, paying them an annual dividend, limiting the entity's investments primarily to income producing real estate and restricting the amount of debt the entity can incur. In short, the rules are designed to provide investors with an attractive annual return, while minimizing risk.