One of the best sources of passive income in the united states is something called a Real Estate Investment Trust (or REIT).
This trust allows you to own real estate via your brokerage account. This means you can own some seriously good real estate in a Roth IRA, and have all the passive income tax free when you turn 59 and 1/2.
Real estate investment trusts were created by Congress in the 1960's to give all individuals the opportunity to benefit from investing in income-producing real estate. REITs allow anyone to own or finance properties the same way they invest in other industries and sectors, through the purchase of shares.
In the same way shareholders benefit by owning stocks in other companies, the shareholders of a REIT can earn a share of the income produced through real estate investments, without the hassle of buying and managing the physical properties.
The REIT sector has a great variety of options and many benefits. REITs are often classified in one of two categories: Equity REITs or Mortgage REITs. Equity REITs own a wide range of real property types including, shopping centers, hotels, offices, apartment complexes, and much more. Equity REITs gain most of their revenue from rent on those properties.
Mortgage REITs may finance both residential and commercial properties. Mortgage REITs get most of their value from interest earned on their investments in mortgages or mortgage-backed securities.
In addition, REITs may be publicly registered with the SEC and have their shares listed and traded on major stock exchanges, or they may be publicly registered with the SEC but not have their shares listed or traded on major stock exchanges, or they may be private companies and not registered with the SEC or have their shares publicly on an exchange.
REITs are required to distribute at least 90 percent of taxable income annually to shareholders as taxable dividends. In other words, a REIT cannot retain it's earnings past 10%. Like a fund, a REIT receives a dividends-paid deduction so no tax is paid at the entity level if 100 percent of income is distributed. REIT shareholders pay taxes on dividends at ordinary rates versus the lower qualified rate.
In 2017 a law was passed called the 2017 Tax Cuts and Jobs Act, which allows up tp 20% of the dividends to be written off on your taxes via deduction. However, please consult a tax professional to ensure you follow this law correctly.
Timestamps: 0:00 Chapter 1 Welcome To The Real Estate Club 0:08 Chapter 2 Leverage Your Money and Get Passive Income and Growth 0:36 Chapter 3 What Is Inside This Trust? 1:25 Chapter 4 The Devil Is In The Taxes 1:53 Chapter 5 Pros and Cons To REITs 3:13 Chapter 6 The Devil Is Your Friend?? 3:47 Chapter 7 Tax Free Passive Income From Real Estate 4:03 Chapter 8 How To Invest In REITs (Real Estate Investment Trusts) 4:55 Chapter 9 How To Use All of This Together To Make Crazy Passive Income 5:33 Chapter 10 Simon Says "REITs are great, BUT"
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