Advice on whether to Buy an REIT
I am attaching a file that I have saved since 2006 regarding
this topic. It is an opinion that was offered within the
Better Investment discussion forum. The general advice
therein is to not buy an REIT within an investment club.
Just wondering if that advice is still valid or if perhaps
the Bivio software can now handle the complicated tax
reporting ramifications better than before.
Hi Victor,

The advice is still valid. It's not that bivio can't handle the inputs required. It's mostly just that they're complicated and you will need a treasurer who is comfortable enough and savvy enough to know how to make them. On top of that, you won't know what adjustments you need to make until late in the tax season and there may be corrections sent out after that that would cause you and all your members to file amended returns.

Here's a post we did last year with more details about REIT's:

and here's a recent post where we were also discussing therm:

Here's a link to a page where we list various types of investments that require accounting and tax reporting that are beyond the scope of bivio and probably the expertise and patience of most investment club treasurers:

I hope everyone also realizes that the portion of REIT distributions that actually are dividends do not, in general, qualify for the lowered tax rate that dividends from publicly traded companies qualify for. While qualified dividends are taxed at not more than 15%, REIT dividends will be taxed at your ordinary income tax rate which is as high as 35% or more for some people. When you are comparing their yields with other investments, you should make sure to take this into account.

In most clubs, you probably won't earn enough from the investment to make the hassle to deal with the taxes and accounting worth it.

And, of course, this is all on top of the fact that you will have a different learning curve to go through to evaluate whether the underlying REIT business is a good investment in the first place.

Laurie Frederiksen
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