Top 3 Tax Advantages of Mortgage Real Estate Investment Trusts
5 minute read
February 13, 2022


Private lending companies are on the rise in the financial services industry, filling in the gaps left behind by banks and credit unions. 

Because traditional lenders are bound by strict rules and regulations, they often miss out on profitable deals that are more unique or financially complex.

This is where mortgage real estate investment trusts (mREITs) come in.

Private money lenders pool together their investors’ funds, carefully selecting their borrowers to offer asset-based deals. This essentially limits investor exposure and diversifies their portfolio through mortgage-backed securities.

Joining a mortgage trust as an investor offers income-generating opportunities for people looking to test the waters of real estate investing without actually having to purchase or manage properties.

Best of all, investing in a real estate investment trust (REIT) offers unique tax advantages that make it easier to manage their dividends and deduct income earned from shared properties.

If you’ve thought about investing in real estate, but didn’t know where to start, then continue reading to learn more about REITs and their unique tax advantages.

What is a REIT?

Real estate investment trusts (REIT) are companies that pool together investors’ money to purchase income-producing real estate. 

Similar to how mutual funds work, the trust invests in real estate properties, such as office buildings, malls, houses, and apartment complexes to charge rent to generate cash flow for their investors. 

There are two types of REITs — equity REIT and mortgage REIT.

Equity REITs

Equity REITs are companies that own and manage income-producing properties for their investors. In addition to charging rent on these properties, they also generate money through buying and selling assets.

After expenses have been paid on the properties, the investors and shareholders will receive their income through dividends.

The majority of REITs operating are equity trusts, and they are required to distribute a minimum of 90% of income to their shareholders in dividends. 

Mortgage REITs

Mortgage REITs (mREITs) are private money lending companies that finance mortgages. Income is generated by charging higher interest rates on short-term loans and collecting payments on those loans. 

These mortgages are asset-based deals, holding the purchased property as collateral in case of a default.

When home buyers or investors want to purchase a property but don’t have enough capital, they will work with a mREIT to borrow a significant amount of money to purchase their home. 

As a part of the deal, the borrower will sign a promissory note and a mortgage. These documents will outline how much money is owed and terms on how to repay the loan.

Mortgage REITs have become an increasingly popular investment vehicle for investors seeking to diversify their portfolio.

The Marquee Capital Fund 1 is a mortgage REIT that allows investors to passively invest in high-yielding secured notes via well-underwritten mortgage products with 8% preferred return.

Top 3 Tax Advantages of Mortgage Real Estate Investing Funds

REITs offer investors unique tax advantages and higher yields that generally outperform the market. Below are a few benefits of becoming an investor in a private mortgage fund: 

1.  REIT Status to Deduct 20% 

The 2017 Tax Cuts and Jobs Act went into effect on January 1st, 2018 and launched new measures enhancing the tax status of REITs.

Since then, investors are entitled to a special 20% dedication of income earned from trusts or estates, including income from REIT dividends.

Per the SEC, a company that derives 75% of its gross income from real estate sources, including collecting interest on mortgage financed properties qualifies as an REIT.

As an investor in the Marquee Capital Fund 1, the fund will elect REIT status to deduct 20% of your qualified REIT dividends from your income tax return.

2. Private Money Lending Firms Handle the Loans for You

It is possible for private lenders to create their own promissory notes through a personal mortgage deal. 

One example may be an older relative loaning money to a younger family member so they can purchase their first home. However, servicing these loans can be difficult in a heavily regulated industry.

Instead, many investors opt to work with mortgage fund companies to handle the financial and legal aspects for them. These companies make it easier to collect payments, keep more detailed documents, and work with their investors to offer tax-advantaged strategies. 

Additionally, mortgage trust companies reduce risk through prudent underwriting and offering asset-based loans, so that properties can be sold in the case of default to allow investors to make their money back.

To ensure stability and protect our investors, Marquee Funding Group offers in-house origination and servicing, consumer and commercial loans, and well-documented, escrowed, and evidenced investments by a recorded security instrument.

3. Not Responsible for Property Maintenance, Taxes, or Insurance

Because mortgage REIT investors aren’t purchasing the properties themselves, they aren’t responsible for managing or maintaining the property, including acting as a landlord or property manager. 

Investors also don’t need to worry about purchasing home insurance or paying property taxes. These are all the responsibilities of the homeowners.

As an investor, income will be generated passively by collecting the principal and interest (P&I) payments monthly until the loan is paid off.

Become an Investor at Marquee Funding Group

Marquee Funding Group is a private money lending firm with secured real estate investments through California and Colorado.

Our Marquee Capital Fund 1 offers passive income-earning opportunities to investors looking to diversify their investments with high-yielding fixed income.

All of our loans are sold “Deal Specific” and are carefully screened and underwritten by licensed professionals with an emphasis on principal and yield preservation. Investors can expect to net yields from 8-12% annually.

Over the last decade, Marquee Funding Group has successfully originated over 1700 loans totaling more than $1 Billion Dollars.

Are you interested in becoming an investor at Marquee? Call us today to discuss this promising real estate investment opportunity.

Photo by Kelly Sikkema on Unsplash

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