When we think about "investing in real estate," one of the first ideas that come to mind is that of purchasing property outright. For centuries, it was a privilege granted only to the very rich, based on the simple fact that common folks simply did not (and still don't) have the economic power to afford multiple properties.
Most people struggle hard enough to make a single mortgage payment, let alone multiple ones, and so the concept of real estate investments eluded the general populus - until now. In the modern era, there is a way for individuals and small investors to get involved in real estate markets: Real Estate Investment Trusts (REITs).
Congress created REITs in 1960, as lawmakers believed that the only way for average investors to gain access to significant commercial properties would be by pooling their resources. REITs were designed to combine the capital funds of many into a single economic package, to be used for commercial real estate ownership and financing. However, REITs went underutilized for more than 30 years because they were restricted to mere ownership, and prohibited from actually operating or managing their properties.
REITs are only meant to produce income, and are not allowed to pass losses on to shareholders, so they had a difficult time competing with the heavily tax-sheltered world of real estate ownership and depreciation during these years. But the Tax Reform Act of 1986 changed everything. It drastically cut back on opportunities to use real estate for tax sheltering, and finally empowered REITs to operate their own properties, which eliminated conflicting interests with third-party management....
Click here to read the rest of the article at YoungMoney.com.