Keep in mind, though, that REITs primarily own real estate which is usually subject to annual state/local taxes. So this may be a lateral move from paying federal tax to local tax.
Quote from: KevinW on February 03, 2012, 11:16:33 PMKeep in mind, though, that REITs primarily own real estate which is usually subject to annual state/local taxes. So this may be a lateral move from paying federal tax to local tax.Interesting point, however I believe the highest RE tax anywhere in the country is 3% annually. Compared to 30% corporate tax and that's nothing. However, I believe most REITs are internally leveraged to a modest degree which would mean they own and pay taxes on several times the value of the equity in their RE.
Well -- if a piece of real estate has a price/rent ratio of 20, then it pays 5% of its market value in rent each year. If 4% is left over after overhead, and property tax is 1% of market value per year, then taxes take 25% of profits. In the same ballpark as the 30% effective rate you cited.
I like your thinking but wouldn't the market simply arbitrage the advantage of the REIT structure away?
I thought about that, but a Roth shelters ALL sources of income regardless of the corporate way it is paid or taxed. So if you could get the same return (with similar risk) from a REIT and a non-REIT investment the fact that the investment is in a Roth really doesn't account for the "free lunch" aspect.
Would a treasury bond held in a Roth IRA also be a free lunch?
On a risk-adjusted basis, REIT returns must equal C-Corp stock market returns if the market is efficient. If shares of Apple, Exxon, and other SP500 companies are providing a greater risk-adjusted return than REITs, then the share price of those stocks relative to REITs Stocks will adjust to equilibrate.