REITs, small lots, and real estate. What is the difference between their inheritance value?

Kanjana Kawfang/

There are various ways to invest in real estate, such as REITs, small-lot real estate, and traditional real estate. In this article, we will explain in detail the differences in inheritance value.

Differences between REITs and fractional ownership

When it comes to real estate investment, many people do not believe it is available to them because the initial investment amount is so large that they would need to borrow money. However, REITs and small-lot real estate can be used to start real estate investment even with a small amount of capital.

A REIT is an investment corporation that invests in multiple properties. The profits made are distributed to investors as dividends.

In the case of REITs, experts are employed to search for, acquire, and manage properties, so investors can easily join without having an in-depth understanding of real estate. In addition, since they invest in various types of real estate, such as properties in central Tokyo, properties in local areas, residential condominiums and office buildings, the risk is dispersed and reduced, which is a big advantage.

REITs are listed on the stock exchange and can be traded in the same way as stocks and other equities. REITs are highly liquid and can be easily converted into cash.

Multiple owner real estate is an investment method in which multiple investors share ownership of properties. It offers investors an attractive opportunity to own otherwise unaffordable properties, such as a large condominium in the city centre, at a reasonable price.

Fractional ownership is similar to REITs at first glance, but in actual fact is more like traditional real estate ownership. Even though it is small-lot, you will still receive an income from rent. In comparison, the income received by REITs is only a distribution of profit, not real estate income.

It may be difficult to obtain information on real estate owned by investment corporations. However, in the case of multiple owner real estate, you know clearly which property you are investing in.

Differences in the evaluation method of inheritance between REITs and multiple owner real estate

The biggest difference between REITs and fractional ownership is the way they are valued to calculate inheritance. The law stipulates that REITs are considered in the same way as listed shares. They are noted down at the market value at the time of valuation. Therefore, a REIT purchased from cash and deposits will not lose value at the time of inheritance.

On the other hand, in the case of multiple ownership, the inheritance value is calculated in the same way as when a property is purchased the traditional way.

Even if you invest in the same real estate, the inheritance value will vary depending on the investment method.

If inheritance tax is owed, smaller lots of real estate or actual real estate will be advantageous.

Both multiple owner real estate and single-owner real estate are valued in the same way. With land, it is possible to calculate inheritance tax by multiplying the land area by the land price announced by the National Tax Agency every year. However, depending on how the land is connected to the road or the shape of the land, it may be necessary to make adjustments on that valuation.

As for buildings, the fixed property tax evaluation amount is used as the inheritance value. The amount of fixed asset tax can be checked on the tax statement that is sent from the local government around May to June every year. It is said that if the land is valued according to the land price, the valued price is about 80% of the market price, and if it is a building, it is about 70% of the market price. In cases where the land and buildings are leased to a third party, it is possible to further reduce the valuation amount depending on the percentage of leasehold rights.

In terms of structure, REITs have many things in common with smaller lots of real estate. However, if the purpose is to take measures against overpaying on inheritance tax, smaller lots of real estate would be advantageous. Of course, it is appealing that you can make small investments in real estate, and small amounts will not face inheritance tax at all. If you are concerned about high inheritance tax after investigating the value of your properties, I recommend real estate.

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