t itself) in the eventuality of insolvency. Instead of limited liability, investors rely on the REIT's management to have property, casualty and liability insurance, prudent lending policies and other reasonable safeguards in place. Nevertheless there is always the possibility of a problem - say a catastrophic fire or a building collapse - that is not covered by insurance. This may have seemed like a very small matter prior to the attacks on the World Trade Center in 2001. Since then, however, it is something that has to be taken seriously.

The second problem with REITs is less transparent. All real estate properties depreciate in value over time (not the land, only the buildings). Depreciation can be so

The purpose of a Real Estate Investment Trust is to greatly reduce or possibly eliminate corporate income tax. In the U.S., Real Estate Investment Trusts pay very little to no federal income tax, but are generally held to a number of special requirements that are set forth in the Internal Revenue Code. One of those requirements is to distribute ninety percent of their annual taxable income in the form of dividends to its shareholders. The trust holds a portfolio of assets and the net cash flow is passed on to its share holders in the form of dividends or distributions.

Real Estate Investment Trusts are a form of Royalty trusts that specialize in actual property. These properties can be anything from office buildings to nursing homes to large parcels of land. Since real estate is a liquid asset, closed end funds are generally the best way to go. The first Real Estate Investment Trust was introduced in the United States in 1960 and was designed to give smaller investors a way to make investments in large scale real estate that was currently income producing. This enabled the small time investor to make an investment in large scale commercial property that would have previously been unavailable to them.

In 1991-1992, there was a general slowdown in the real estate market. This time is the real jumping point for real estate investment trusts and when they became a mass investment vehicle. Faced with redemption demands on the part of unit-holders, real estate mutual funds were presented with the unpalatable option of selling valuable real properties into a distressed market to raise cash. Many of them, therefore, chose to close off redemptions and converted into Real Estate Investment Trusts, since then most commonly known as REIT's. Only a few open-end real estate mutual funds continue to own real estate directly. Most now invest in shares of real estate-related companies.

The typical REIT distribution is equal to 85-95 percent of its income which is rental income from properties. These distributions are made to the shareholders generally on a quarterly basis. Because REIT shareholders are entitled to a tax break for depreciation of the real estate held in the REIT, these distributions usually get a tax break. Because of this situation, a high percentage of the distribution is tax deferred. REIT's yields and the market price of units are greatly influenced by the interest rates as they move. The movement of the interest rates has a direct correlation with the yields in a REIT, meaning that when interest rates rise, the cost of REITs will drop, but the yields will rise as well. There are typically two catches with REITs. The first is that since investors are 'unit- holders' rather than shareholders, they are potentially jointly and severally liable together with all other unit-holders (plus the trust itself) in the eventuality of insolvency. Instead of limited liability, investors rely on the REIT's management to have property, casualty and liability insurance, prudent lending policies and other reasonable safeguards in place. Nevertheless there is always the possibility of a problem - say a catastrophic fire or a building collapse - that is not covered by insurance. This may have seemed like a very small matter prior to the attacks on the World Trade Center in 2001. Since then, however, it is something that has to be taken seriously.

The second problem with REITs is less transparent. All real estate properties depreciate in value over time (not the land, only the buildings). Depreciation can be som

office buildings to nursing homes to large parcels of land. Since real estate is a liquid asset, closed end funds are generally the best way to go. The first Real Estate Investment Trust was introduced in the United States in 1960 and was designed to give smaller investors a way to make investments in large scale real estate that was currently income producing. This enabled the small time investor to make an investment in large scale commercial property that would have previously been unavailable to them.

In 1991-1992, there was a general slowdown in the real estate market. This time is the real jumping point for real estate investment trusts and when they became a mass investment vehicle. Faced with redemption demands on the part of unit-holders, real estate mutual funds were presented with the unpalatable option of selling valuable real properties into a distressed market to raise cash. Many of them, therefore, chose to close off redemptions and converted into Real Estate Investment Trusts, since then most commonly known as REIT's. Only a few open-end real estate mutual funds continue to own real estate directly. Most now invest in shares of real estate-related companies.

The typical REIT distribution is equal to 85-95 percent of its income which is rental income from properties. These distributions are made to the shareholders generally on a quarterly basis. Because REIT shareholders are entitled to a tax break for depreciation of the real estate held in the REIT, these distributions usually get a tax break. Because of this situation, a high percentage of the distribution is tax deferred. REIT's yields and the market price of units are greatly influenced by the interest rates as they move. The movement of the interest rates has a direct correlation with the yields in a REIT, meaning that when interest rates rise, the cost of REITs will drop, but the yields will rise as well. There are typically two catches with REITs. The first is that since investors are 'unit- holders' rather than shareholders, they are potentially jointly and severally liable together with all other unit-holders (plus the trust itself) in the eventuality of insolvency. Instead of limited liability, investors rely on the REIT's management to have property, casualty and liability insurance, prudent lending policies and other reasonable safeguards in place. Nevertheless there is always the possibility of a problem - say a catastrophic fire or a building collapse - that is not covered by insurance. This may have seemed like a very small matter prior to the attacks on the World Trade Center in 2001. Since then, however, it is something that has to be taken seriously.

The second problem with REITs is less transparent. All real estate properties depreciate in value over time (not the land, only the buildings). Depreciation can be so

h redemption demands on the part of unit-holders, real estate mutual funds were presented with the unpalatable option of selling valuable real properties into a distressed market to raise cash. Many of them, therefore, chose to close off redemptions and converted into Real Estate Investment Trusts, since then most commonly known as REIT's. Only a few open-end real estate mutual funds continue to own real estate directly. Most now invest in shares of real estate-related companies.

The typical REIT distribution is equal to 85-95 percent of its income which is rental income from properties. These distributions are made to the shareholders generally on a quarterly basis. Because REIT shareholders are entitled to a tax break for depreciation of the real estate held in the REIT, these distributions usually get a tax break. Because of this situation, a high percentage of the distribution is tax deferred. REIT's yields and the market price of units are greatly influenced by the interest rates as they move. The movement of the interest rates has a direct correlation with the yields in a REIT, meaning that when interest rates rise, the cost of REITs will drop, but the yields will rise as well. There are typically two catches with REITs. The first is that since investors are 'unit- holders' rather than shareholders, they are potentially jointly and severally liable together with all other unit-holders (plus the trust itself) in the eventuality of insolvency. Instead of limited liability, investors rely on the REIT's management to have property, casualty and liability insurance, prudent lending policies and other reasonable safeguards in place. Nevertheless there is always the possibility of a problem - say a catastrophic fire or a building collapse - that is not covered by insurance. This may have seemed like a very small matter prior to the attacks on the World Trade Center in 2001. Since then, however, it is something that has to be taken seriously.

The second problem with REITs is less transparent. All real estate properties depreciate in value over time (not the land, only the buildings). Depreciation can be so

ed to a tax break for depreciation of the real estate held in the REIT, these distributions usually get a tax break. Because of this situation, a high percentage of the distribution is tax deferred. REIT's yields and the market price of units are greatly influenced by the interest rates as they move. The movement of the interest rates has a direct correlation with the yields in a REIT, meaning that when interest rates rise, the cost of REITs will drop, but the yields will rise as well. There are typically two catches with REITs. The first is that since investors are 'unit- holders' rather than shareholders, they are potentially jointly and severally liable together with all other unit-holders (plus the trust itself) in the eventuality of insolvency. Instead of limited liability, investors rely on the REIT's management to have property, casualty and liability insurance, prudent lending policies and other reasonable safeguards in place. Nevertheless there is always the possibility of a problem - say a catastrophic fire or a building collapse - that is not covered by insurance. This may have seemed like a very small matter prior to the attacks on the World Trade Center in 2001. Since then, however, it is something that has to be taken seriously.

The second problem with REITs is less transparent. All real estate properties depreciate in value over time (not the land, only the buildings). Depreciation can be so

t itself) in the eventuality of insolvency. Instead of limited liability, investors rely on the REIT's management to have property, casualty and liability insurance, prudent lending policies and other reasonable safeguards in place. Nevertheless there is always the possibility of a problem - say a catastrophic fire or a building collapse - that is not covered by insurance. This may have seemed like a very small matter prior to the attacks on the World Trade Center in 2001. Since then, however, it is something that has to be taken seriously.

The second problem with REITs is less transparent. All real estate properties depreciate in value over time (not the land, only the buildings). Depreciation can be somewhat slowed down by earmarking at times significant amounts of money for maintenance and renewal of facilities. Since most of the REIT's income is being distributed and the capital cost allowance is being allocated to investors, investors are factually getting their own capital back over time. As such, the book value of the underlying real properties will be steadily depleting.