How Do I Receive Private Mortgage REIT Distributions?
5 minute read
June 3, 2024


Private Mortgage Real Estate Investment Trusts (REITs) offer an attractive investment opportunity for those looking to diversify their portfolio and generate regular income. However, one of the questions we frequently hear is: How are these private mortgage REIT distributions made? 

After all, if you take advantage of these specialized investments to gain access to a steady income stream, it helps to know how REIT distributions are done. 

In this article, we will explore what private mortgage REITs are, how they operate, and the steps to invest in them to receive REIT distributions.

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Understanding private mortgage REITs

A private mortgage REIT is a real estate investment trust that zeroes in on financing properties through mortgage loans and purchasing mortgage-backed securities. 

Unlike publicly-traded REITs, which are listed on stock exchanges and can be bought and sold by the general public, private mortgage REITs are not publicly traded. 

This means they are typically available only to accredited investors and are less liquid than their publicly traded counterparts.

How private REITs differ from public ones

  • They are not subject to the exact regulatory requirements, allowing them more flexibility in their investment strategies
  • Private mortgage REITs often target higher-yielding, less conventional real estate loans, which can result in higher returns for investors
  • This potential also means they can carry higher risks.

Structures of private REITs

The typical structure of a private mortgage REIT involves pooling funds from investors to purchase or originate mortgage loans. 

The income generated from these loans, primarily through interest payments, is then distributed to investors as REIT distributions. 

This structure enables investors to benefit from the income generated by a diversified portfolio of real estate loans without directly managing the properties or loans themselves.

Benefits of investing in private mortgage REITs

Investing in private mortgage REITs offers several benefits for income-seeking investors. 

  • Returns: Private mortgage REITs often target higher-yielding mortgage loans, which can result in substantial income for investors
  • Consistent income streams: Regular interest payments from these loans provide a steady flow of funds
  • Diversification: Investors can diversify portfolios beyond traditional stocks and bonds, which can reduce overall risk in their portfolios and provide a hedge against market volatility
  • Diversification (part II): Additionally, private mortgage REITs often deal with a broad range of real estate assets, further enhancing diversification
  • Tax advantages: Under U.S. tax law, REITs are required to distribute the vast majority of their taxable income to shareholders—at least 90%—enabling REIT distributions to be taxed at a lower rate than ordinary income, providing investors with tax-efficient income
  • Tax advantages (part II): Furthermore, a portion of REIT distributions may be classified as a return of capital, which is not taxed until the investment is sold

Receiving REIT distributions

The mechanics of receiving REIT distributions are straightforward but depend on the specific policies of the REIT you invest in. 

Typically, distributions are paid out quarterly, though some REITs may choose to distribute income monthly or semi-annually. 

These distributions represent your share of the income generated by the REIT’s portfolio of mortgage loans.

REIT distribution amounts

The amount of each distribution can vary based on several factors, the main one being the overall performance of the REIT investments. 

Well-performing mortgage loans that generate consistent interest payments mean the distributions to investors will be higher. 

Conversely, defaults or underperforming loans can reduce the income available for distribution.

The other factors that might affect the timing and amount of distributions include: 

NOTE: Economic downturns, rising interest rates, and management issues can impact the overall performance and the REIT distributions. 

To mitigate these risks, investors should conduct thorough due diligence, diversify investments, and stay informed about market trends and REIT performance.

Tax implications of REIT distributions

Investors must be aware that REIT distributions are subject to specific tax treatments. 

Generally, REIT distributions can be classified into three categories:

  1. Ordinary income
  2. Capital gains
  3. Return of capital 

Ordinary income

Most REIT distributions are considered ordinary and taxed at the investor’s marginal tax rate. This income represents the interest payments collected from the mortgage loans in the REIT’s portfolio.

Capital gains

If the REIT sells assets at a profit, a portion of the distribution may be classified as capital gains. Capital gains, on average, have a lower tax rate than ordinary income, depending on the investor’s tax situation.

Return of capital

Sometimes, part of the distribution is considered a return of capital. This portion is not taxed when received but reduces the investor’s cost basis in the REIT investment. 

The reduced cost basis can affect the capital gains tax when the investment is eventually sold.

To minimize tax liability on REIT distributions, investors can consider strategies such as holding REIT investments in tax-advantaged accounts like IRAs or 401(k)s. 

Depending on the account type, these accounts can defer or eliminate taxes on REIT distributions.

Always consult a tax professional to confirm how your financial portfolio should be treated. 

REIT distributions: The bottom line

Private mortgage REITs offer a unique opportunity to generate regular income through REIT distributions. 

By understanding how these distributions work, the associated tax implications, and the potential risks, investors can make informed decisions to maximize their returns. 

Choose Marquee Funding Group REITs to bolster your portfolio

Investors seeking predictable income, diversified holdings, and real estate debt market exposure should consider private mortgage REITs.

Marquee Capital Fund 1 focuses on mortgage debt, providing a passive investment vehicle as an alternative to traditional fixed-income options.

Your investment benefits from the Marquee team’s high-performing expertise and is protected through:

  • Prudent underwriting
  • Diversification via a pool of mortgage-backed securities
  • Investment in a broad range of mortgage products

Marquee Capital Fund 1 offers passive, high-yield fixed income that outperforms the stock market and provides unique tax benefits.

Start investing with Marquee Funding Group to enhance your investment strategy today.