Chartered Alternative Investment Analyst Association (CAIA) Practice Exam

Which is NOT a major advantage of REIT ownership?

1. Tax exemption at corporate level

2. Management services for property selection and operation

3. Access to high-risk investments

4. Liquid access to illiquid assets

The correct answer is: Access to high-risk investments

The question seeks to identify which statement does not represent a major advantage of Real Estate Investment Trusts (REITs). The focus here is on understanding the characteristics of REITs and what typically defines their benefits to investors. REITs are designed to provide investors with a means of participating in real estate markets without directly owning property. One of the key advantages of REITs is the tax exemption they receive at the corporate level, provided they adhere to specific regulatory requirements. This allows them to avoid double taxation, which can enhance the returns distributed to shareholders. Another prominent advantage is that REITs offer professional management services that handle property selection and operation. This alleviates the burden on individual investors to manage their investments actively, making real estate ownership more accessible. REITs also provide liquid access to assets that are ordinarily illiquid, such as physical real estate properties. Investors can buy and sell shares of publicly-traded REITs on stock exchanges, enabling them to exit their positions more easily compared to traditional property investments. In contrast, access to high-risk investments is not a major advantage of REIT ownership. While some REITs may invest in riskier assets or markets, the general appeal of REITs lies in their ability to