U.S. Real Estate Investment Trusts (REITs): A Guide for Turkish Investors

U.S. Real Estate Investment Trusts (REITs) are one of the most accessible and tax-efficient vehicles for foreign investors — including Turkish nationals — to gain exposure to U.S. real estate. REITs allow investors to participate in the income and appreciation of large-scale U.S. real estate portfolios without the management burden, illiquidity, and high capital requirements of direct property ownership.

This guide explains how REITs work, how they are taxed for Turkish investors, the key distinctions between publicly traded and private REITs, and how REITs fit into a broader U.S. investment strategy.

A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-producing real estate. To qualify as a REIT under U.S. tax law, a company must meet several requirements:

• Asset test: At least 75% of total assets must be real estate assets, cash, or U.S. government securities
• Income test: At least 75% of gross income must come from real estate sources (rents, mortgage interest, gains from real estate sales); at least 95% of gross income must come from real estate sources plus dividends and interest
• Distribution requirement: At least 90% of taxable income must be distributed to shareholders annually as dividends
• Ownership: Must have at least 100 shareholders; no more than 50% of shares can be held by five or fewer individuals

The distribution requirement is the defining feature of REITs from an investor's perspective: REITs must pay out most of their income as dividends, making them high-yield income investments.

Equity REITs own and operate income-producing real estate. They generate revenue primarily from rents. Equity REITs are the most common type and include REITs focused on:

• Office buildings
• Retail (shopping centers, malls)
• Industrial and logistics (warehouses, distribution centers)
• Multifamily residential (apartment complexes)
• Healthcare (hospitals, senior housing, medical office)
• Data centers
• Cell towers and infrastructure
• Hotels and hospitality

Mortgage REITs (mREITs) provide financing for real estate by purchasing or originating mortgages and mortgage-backed securities. They generate revenue from interest income rather than rents. Mortgage REITs are more sensitive to interest rate changes than equity REITs.

Hybrid REITs combine equity and mortgage REIT strategies.

Publicly traded REITs are listed on major U.S. stock exchanges (NYSE, NASDAQ). They offer:

• Daily liquidity (shares can be bought and sold like stocks)
• Price transparency
• SEC disclosure requirements
• Accessibility through brokerage accounts

Non-traded REITs are registered with the SEC but not listed on an exchange. They offer:

• Reduced volatility (no daily price fluctuations)
• Typically higher dividend yields than publicly traded REITs
• Limited liquidity (redemption programs, not daily trading)
• Higher minimum investments

Private REITs are not registered with the SEC and are not publicly traded. They are available only to accredited investors and institutional investors. They offer:

• Potentially higher returns
• No SEC reporting requirements
• Very limited liquidity
• Higher minimum investments (typically $50,000–$250,000+)

Industrial REITs have been among the strongest performers in recent years, driven by e-commerce growth and supply chain reshoring. Key players include Prologis (PLD) and Duke Realty (acquired by Prologis). Demand for warehouse and distribution space near major population centers remains strong.

Data center REITs have experienced explosive growth driven by cloud computing and AI infrastructure demand. Key players include Equinix (EQIX) and Digital Realty (DLR). AI-driven demand for computing capacity is expected to sustain strong growth through 2025 and beyond.

Healthcare REITs benefit from demographic tailwinds (aging U.S. population) and include senior housing, skilled nursing facilities, medical office buildings, and hospitals. Key players include Welltower (WELL) and Ventas (VTR).

Multifamily REITs own apartment complexes and benefit from the ongoing U.S. housing shortage. Key players include AvalonBay Communities (AVB) and Equity Residential (EQR).

Office REITs have faced headwinds from remote work trends, with significant variation between high-quality urban office (performing well) and suburban office (struggling). Turkish investors should be selective in this sector.

REIT dividends paid to foreign investors (including Turkish nationals) are generally subject to 30% U.S. withholding tax. However, the U.S.-Turkey Tax Treaty reduces this withholding rate:

To claim the reduced treaty rate, Turkish investors must provide their broker or the REIT's transfer agent with Form W-8BEN (for individuals) or Form W-8BEN-E (for entities), certifying their Turkish tax residency.

The Foreign Investment in Real Property Tax Act (FIRPTA) imposes U.S. tax on foreign investors' gains from the disposition of U.S. real property interests (USRPIs). REITs that hold U.S. real property are USRPIs, which creates FIRPTA exposure for Turkish investors.

FIRPTA and publicly traded REITs: There is an important exception for publicly traded REITs. A foreign investor who holds 5% or less of a class of publicly traded REIT stock is exempt from FIRPTA on the sale of those shares. This makes small positions in publicly traded REITs very tax-efficient for Turkish investors.

FIRPTA and capital gain dividends: REIT capital gain dividends (dividends designated as coming from gains on real estate sales) are subject to FIRPTA withholding at 21% for foreign investors, regardless of the 5% threshold.

FIRPTA and private/non-traded REITs: Turkish investors in private or non-traded REITs do not benefit from the publicly traded REIT exception and are subject to FIRPTA on gains from disposition.

The 20% deduction for qualified business income (Section 199A) applies to REIT dividends received by U.S. taxpayers. This deduction is generally not available to foreign investors (including Turkish nationals) who are not U.S. tax residents.

The most straightforward way for Turkish investors to access publicly traded REITs is through a U.S. brokerage account. Several major U.S. brokers accept foreign investors, including:

• Interactive Brokers
• Charles Schwab International
• TD Ameritrade (now part of Schwab)

Requirements: Turkish investors typically need to provide:

• Passport or national ID
• Proof of address
• Form W-8BEN (to claim treaty benefits and certify foreign status)
• Tax identification number (Turkish or U.S.)

Turkish investors who invest in U.S. REITs through a U.S. LLC or corporation may face different tax treatment. Investing through a U.S. C-corporation can eliminate FIRPTA exposure on share sales but introduces corporate-level U.S. tax on dividends and gains. Turkish investors should consult U.S. tax counsel before structuring REIT investments through a U.S. entity.

REIT exchange-traded funds (ETFs) provide diversified exposure to multiple REITs through a single investment. Popular REIT ETFs include:

• Vanguard Real Estate ETF (VNQ): Broad exposure to U.S. equity REITs
• iShares U.S. Real Estate ETF (IYR): Similar broad exposure
• Schwab U.S. REIT ETF (SCHH): Low-cost broad REIT exposure

REIT ETFs are subject to the same FIRPTA and withholding tax rules as individual REITs.

For Turkish investors who want U.S. real estate exposure without the complexity of direct ownership, publicly traded REITs — particularly positions of 5% or less — offer an attractive combination of liquidity, diversification, and FIRPTA efficiency.

1. File Form W-8BEN: Always provide Form W-8BEN to your broker to claim the reduced 15% treaty withholding rate on dividends. Without it, the default 30% rate applies.

2. Stay below the 5% FIRPTA threshold: For publicly traded REITs, keeping your position below 5% of any class of shares eliminates FIRPTA on share sales.

3. Be aware of capital gain dividends: Even with the 5% exception, capital gain dividends from publicly traded REITs are subject to 21% FIRPTA withholding.

4. Consider REIT ETFs for diversification: REIT ETFs provide instant diversification across dozens of REITs and sectors.

5. Consult U.S. tax counsel: REIT taxation for foreign investors is complex. Engage a U.S. tax advisor with international expertise before making significant REIT investments.

6. Monitor sector allocation: Different REIT sectors have different risk/return profiles. Industrial, data center, and healthcare REITs have been strong performers; office REITs have faced headwinds.

U.S. REITs offer Turkish investors a compelling combination of U.S. real estate exposure, regular income, liquidity, and — for publicly traded REITs held below the 5% FIRPTA threshold — tax efficiency. They are an accessible entry point into U.S. real estate for investors who want portfolio diversification without the complexity of direct property ownership.

ULF New York advises Turkish investors on U.S. real estate investment structures, FIRPTA compliance, treaty benefits, and cross-border tax planning. Contact us to discuss how REITs fit into your U.S. investment strategy.

This article is for informational purposes only and does not constitute legal, tax, or investment advice. Tax laws and treaty provisions are subject to change; consult qualified U.S. tax counsel for advice specific to your situation.