Business Development Companies (BDCs) and Real Estate Investment Trusts (REITs) are often mentioned in the same breath because they share a similar tax architecture: both are pass-through vehicles that distribute most of their income to shareholders and avoid entity-level tax, and both are popular among income-focused investors. But underneath that shared structure, they invest in completely different things. A REIT owns or finances income-producing real estate and earns rents (or mortgage interest). A BDC is a closed-end investment company that lends to and invests in small and mid-sized private companies — its income comes from loan interest, not rents. That single difference cascades into different income drivers, different risks, and different roles in a portfolio. This guide explains what a BDC is, how BDC and REIT holdings differ, their income and risk profiles, the tax-treatment differences, and how to choose between them. Note that BDC and non-traded-REIT interests typically require accredited or otherwise suitable investors and are offered through a broker-dealer after a suitability review; Baker 1031 does not provide tax or legal advice, so verify the current rules with your CPA. This is educational information, not investment advice.
What a BDC Is
A Business Development Company (BDC) is a type of closed-end investment company, created by Congress in 1980, whose purpose is to provide capital to small and mid-sized private companies — businesses that are too large for a typical bank loan but too small or too private to easily tap the public capital markets. A BDC raises money from investors and deploys it primarily as loans to these companies, and sometimes as equity stakes. In that sense, a BDC is a vehicle for private-credit and private-equity exposure, not real estate.
Structurally, a BDC is a regulated investment company under the Investment Company Act of 1940, and like a REIT it can elect pass-through tax treatment: if it distributes at least 90% of its taxable income to shareholders, it generally avoids paying entity-level corporate tax, passing income through to investors. BDCs come in publicly traded form (listed on an exchange, liquid) and non-traded form (unlisted, illiquid, NAV-priced) — a parallel to the traded/non-traded distinction in the REIT world. Non-traded BDCs are offered through broker-dealers to accredited or otherwise suitable investors after a suitability review.
So a BDC is a closed-end investment company that lends to and invests in small and mid-sized private companies, using a pass-through tax structure much like a REIT. So understanding what a BDC is frames the comparison. A Business Development Company — a closed-end investment company created in 1980 to finance small and mid-sized private businesses, deploying capital mainly as loans (and some equity), using a 90%-distribution pass-through tax structure, and available in both traded and non-traded forms — is the private-credit counterpart to a REIT. It provides capital to private companies rather than owning buildings. Understanding what a BDC is frames everything that follows. A BDC is a closed-end investment company that lends to and invests in private companies, passing most of its income through to shareholders — a private-credit vehicle, not a real estate one.
BDC vs. REIT Holdings
The clearest way to tell a BDC and a REIT apart is to look at what each actually holds. A REIT's portfolio is real estate: an equity REIT owns physical, income-producing properties — apartments, warehouses, shopping centers, data centers, medical buildings — while a mortgage REIT holds real estate debt (mortgages and mortgage-backed securities). Either way, the underlying asset is real property or loans secured by it, and the income engine is rent or mortgage interest tied to that real estate.
A BDC's portfolio is private-company debt and equity. Its holdings are loans it has made to small and mid-sized private businesses — often floating-rate senior secured loans that sit near the top of a borrower's capital structure — plus, in some cases, equity stakes in those companies. So when you own a BDC, you're effectively a part-owner of a diversified pool of private business loans, not a pool of real estate. The borrowers might operate in software, healthcare services, manufacturing, or consumer businesses — sectors with nothing to do with real estate.
So the holdings tell the story: a REIT holds real estate (or real estate debt), while a BDC holds private-company loans (and some equity). So this is the foundational difference between the two. BDC versus REIT holdings — a REIT owning physical real estate or mortgages secured by it (with income from rents or mortgage interest), versus a BDC holding loans to and equity in small and mid-sized private operating companies (often floating-rate senior secured loans) — is the foundational distinction. They are different asset classes entirely: real estate versus private credit. Understanding what each holds shows why their income and risk behave differently. A REIT holds real estate or real estate debt; a BDC holds private-company loans and some equity — two fundamentally different asset classes inside a similar pass-through wrapper.
The wrapper looks similar, but the contents could not be more different: open up a REIT and you find buildings and mortgages; open up a BDC and you find loans to private operating companies.
Income and Risk Profiles
Because their holdings differ, BDCs and REITs generate income in different ways and carry different risks. A REIT's income comes from rents (equity REITs) or mortgage interest (mortgage REITs). Equity-REIT income tends to be relatively stable, tied to lease terms and occupancy, and its main risks are real estate risk (falling rents, occupancy, or property values) and interest-rate risk (which pressures property valuations and, for mortgage REITs, the rate spread).
A BDC's income comes from the interest on the loans it makes to private companies — and because many of those loans are floating-rate, BDC income often rises when short-term rates rise and falls when they decline. BDC yields are frequently high, reflecting the credit risk of lending to private, often-leveraged businesses. The dominant risks are credit and business risk — borrowers can default, especially in a recession — plus leverage risk, since BDCs themselves often borrow to amplify returns. So a BDC's risk is fundamentally about whether its private-company borrowers can repay, which behaves differently from real estate risk.
So the income-and-risk contrast is real: REIT income flows from rents with real estate and rate risk, while BDC income flows from loan interest (often floating-rate) with corporate credit and leverage risk. So the two diversify differently in a portfolio. Income and risk profiles — REITs earning rents or mortgage interest and carrying real estate and interest-rate risk, versus BDCs earning loan interest (frequently floating-rate, often high-yielding) and carrying corporate credit, business, and leverage risk — distinguish the two clearly. A REIT's fortunes track real estate; a BDC's track the health of private-company borrowers. Understanding each profile shows how they behave under different conditions. REITs earn rents with real estate and rate risk; BDCs earn loan interest (often floating-rate, higher-yielding) with corporate credit and leverage risk — different income engines and different risks.
Tax Treatment Differences
BDCs and REITs share the same basic tax architecture but differ in the details of how distributions are characterized. Both are pass-through vehicles: each must distribute roughly 90% or more of its income to shareholders, and by doing so each generally avoids entity-level corporate tax, so income is taxed mainly at the shareholder level. That shared structure is why both are prized as income vehicles. But the character of the income you receive — and how it's taxed in your hands — isn't identical.
REIT ordinary dividends are mostly taxed as ordinary income, but qualified REIT dividends benefit from the 20% Section 199A deduction, which lowers the effective top federal rate on them. BDC distributions are also largely ordinary income (reflecting the interest the BDC earns), and some BDCs designate amounts that may be eligible for the 199A deduction as well — but the treatment can differ from REITs and varies by BDC and by year. Both may also pass through capital-gain or return-of-capital components. Because the details are technical and situation-specific, the right move is to read each vehicle's tax reporting (REITs report on Form 1099-DIV) and consult your CPA.
So both BDCs and REITs are pass-through income vehicles whose distributions are largely ordinary income, but the specifics of the 199A deduction and distribution character differ — a detail to confirm with your tax advisor. So taxes are similar in structure but not identical in detail. Tax treatment differences — both BDCs and REITs distributing ~90%+ of income to avoid entity-level tax (pass-through), with distributions largely ordinary income, but the application of the 20% Section 199A deduction and the precise character of distributions differing between them and varying by vehicle and year — matter for after-tax returns. The structure is shared; the details are not. Confirm your specific treatment with a CPA. BDCs and REITs are both pass-through vehicles with largely-ordinary-income distributions, but 199A eligibility and distribution character differ — consult your CPA on the specifics.
- A BDC is a closed-end investment company that lends to and invests in small and mid-sized private companies — it holds private-company loans and equity, not real estate.
- REITs earn rents or mortgage interest with real estate and interest-rate risk; BDCs earn loan interest (often floating-rate) with corporate credit, business, and leverage risk.
- Both are pass-through vehicles distributing ~90%+ of income, but the application of the 20% Section 199A deduction and distribution character can differ — consult your CPA.
- Choosing between them is really a choice of asset class: real estate exposure (REIT) versus private-credit exposure (BDC), for different portfolio goals.
Non-Traded BDCs and Non-Traded REITs
Both BDCs and REITs come in non-traded forms, and the parallels there are worth understanding because the structural trade-offs rhyme. A non-traded BDC, like a non-traded REIT, is registered with the SEC but not listed on an exchange — so its shares don't trade daily at a market price. Instead, it's priced periodically at net asset value (NAV), offers only limited redemption-based liquidity (typically capped and potentially gateable), and is sold through broker-dealers to accredited or otherwise suitable investors after a suitability review.
The reason an investor might consider a non-traded version of either is similar: access to a private strategy (private credit for a BDC, private real estate for a REIT) without daily mark-to-market price swings, in exchange for illiquidity and a longer holding period. The trade-offs are also similar: limited liquidity, periodic appraisal-based pricing that can lag real markets, fees, and the need to plan around a multi-year hold. So if you understand the non-traded REIT structure, you already understand much of how a non-traded BDC behaves — the difference is what's inside (private loans versus real estate).
So non-traded BDCs and non-traded REITs share the same structural DNA — NAV pricing, limited redemptions, suitability gating, illiquidity — applied to different underlying assets. So the structural lessons transfer between them. Non-traded BDCs and non-traded REITs — both being SEC-registered but unlisted, NAV-priced, limited-liquidity vehicles sold through broker-dealers to suitable investors, differing mainly in whether the underlying assets are private-company loans (BDC) or real estate (REIT) — share the same structural framework. The wrapper behaves alike; the contents differ. Understanding one helps you understand the other. Non-traded BDCs and non-traded REITs share the same structure — NAV pricing, capped redemptions, illiquidity, suitability gating — applied to private credit versus real estate respectively.
If you already understand how a non-traded REIT works, you understand most of how a non-traded BDC works — the structure is nearly identical, and only the asset class changes.
Choosing Between Them
Choosing between a BDC and a REIT isn't really about which is 'better' — it's about which asset class you want exposure to and why. If you want real estate exposure — income from rents, participation in property values, and a hedge that historically behaves somewhat differently from stocks and bonds — a REIT is the vehicle. If you want private-credit exposure — income from loans to private companies, often with floating-rate characteristics that can benefit when short-term rates rise — a BDC is the vehicle. They're different tools for different jobs.
Many investors actually hold both, treating them as distinct sleeves: a real estate allocation (REIT) and a private-credit allocation (BDC), each diversifying the other and the broader portfolio. The key is to recognize that a BDC's high yield comes with corporate credit and leverage risk that behaves differently from a REIT's real estate and rate risk — so they shouldn't be treated as interchangeable just because both pay attractive distributions. Match each to its role, size each to your risk tolerance, and, for non-traded versions, confirm you can accept the illiquidity.
So the choice is really an asset-allocation decision: real estate (REIT) versus private credit (BDC), often alongside each other rather than instead of each other. So decide based on the exposure you want, not the yield alone. Choosing between them — recognizing that a REIT delivers real estate exposure (rents, property values, real estate and rate risk) while a BDC delivers private-credit exposure (loan interest, often floating-rate, with corporate credit and leverage risk), that the two diversify differently, and that many portfolios hold both as distinct sleeves — comes down to the asset class and role you want, not which yield looks higher. Match the tool to the job. The choice between a BDC and a REIT is an asset-class decision: private-credit exposure versus real estate exposure — different tools for different goals, often held together rather than as substitutes.
How Baker 1031 Helps You Compare BDCs and REITs
Baker 1031 Investments helps investors understand how BDCs and REITs compare — what a BDC is, how BDC and REIT holdings differ, their income and risk profiles, the tax-treatment differences, and how to choose between private-credit and real estate exposure — so you can decide which asset class (or both) fits your goals and, if suitable, access appropriate offerings.
REIT, non-traded-REIT, and related securities (including non-traded BDC interests where offered) are offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), and any recommendation follows a suitability review — non-traded and private vehicles typically require accredited or otherwise suitable investors and are illiquid, while publicly traded REITs and BDCs trade through ordinary brokerage accounts. Baker 1031 does not provide tax or legal advice; your CPA handles how BDC and REIT distributions are taxed in your situation, including how the Section 199A deduction applies, which can be technical and differs between the two. We help you understand the structures, weigh real estate exposure against private-credit exposure, and access suitable offerings when appropriate, coordinating with your tax professionals. Yields and returns are never promised — past performance does not guarantee future results, and both BDC and REIT distributions and values can fluctuate. Our role is to help you compare the two clearly and invest only when suitable for your goals and risk tolerance.
Frequently Asked Questions
What is a BDC?
A BDC — Business Development Company — is a type of closed-end investment company, created by Congress in 1980, whose purpose is to provide capital to small and mid-sized private companies. A BDC raises money from investors and deploys it primarily as loans to these businesses, and sometimes as equity stakes — so it provides private-credit (and some private-equity) exposure, not real estate. Structurally, a BDC is a regulated investment company under the Investment Company Act of 1940, and like a REIT it can elect pass-through tax treatment: if it distributes at least 90% of its taxable income, it generally avoids entity-level corporate tax, passing income through to shareholders. BDCs come in publicly traded (listed, liquid) and non-traded (unlisted, illiquid, NAV-priced) forms. So a BDC is a closed-end company that lends to and invests in private companies, using a pass-through structure much like a REIT but with completely different underlying assets — private business loans rather than buildings.
How is a BDC different from a REIT?
The core difference is what each holds. A REIT owns or finances real estate: an equity REIT owns physical income-producing properties and earns rents, while a mortgage REIT holds mortgages and earns interest tied to real estate. A BDC, by contrast, holds loans to and equity in small and mid-sized private operating companies — its income comes from loan interest, not rents, and its borrowers operate in industries that often have nothing to do with real estate. So they are different asset classes inside a similar tax wrapper. Both are pass-through vehicles distributing roughly 90% or more of income to avoid entity-level tax, but a REIT gives you real estate exposure (with real estate and interest-rate risk) while a BDC gives you private-credit exposure (with corporate credit and leverage risk). So if you understand a REIT's wrapper, you understand a BDC's wrapper — but the contents are entirely different, which is what matters most for your portfolio.
What does a BDC actually hold?
A BDC holds private-company debt and equity. Its portfolio is made up of loans it has originated to small and mid-sized private businesses — frequently floating-rate senior secured loans that sit near the top of a borrower's capital structure, which can offer some protection in a default — plus, in some cases, equity stakes in those same companies. So when you own a BDC, you effectively own a slice of a diversified pool of private business loans (and some equity), not a pool of real estate. The borrowers might operate in software, healthcare services, manufacturing, business services, or consumer sectors. This is fundamentally different from a REIT, whose portfolio is physical real estate or mortgages secured by real estate. Understanding that a BDC holds private-company loans — and that its returns depend on those borrowers paying interest and principal — is the key to understanding how a BDC's income and risk differ from a real estate investment like a REIT.
Do BDCs have higher yields than REITs?
BDCs often carry high yields, frequently reflecting the credit risk of lending to private, often-leveraged businesses and the floating-rate nature of many of their loans, which can push income higher when short-term interest rates rise. REIT yields are also typically higher than the broad stock market because of the 90% distribution rule, but they're driven by rents (or mortgage interest) rather than loan interest. Whether a BDC yields more than a REIT depends on the specific vehicles and the rate environment — neither is universally higher. The more important point is that a higher yield isn't free: a BDC's elevated yield comes with corporate credit and leverage risk (borrowers can default, especially in a recession), which behaves differently from a REIT's real estate and rate risk. So don't choose between them on yield alone — understand the risk you're taking to earn that yield. Past performance and current yields don't guarantee future distributions for either vehicle.
Are BDC distributions taxed like REIT dividends?
They're similar in structure but not identical in detail. Both BDCs and REITs are pass-through vehicles, so each distributes roughly 90% or more of its income and avoids entity-level corporate tax, with income taxed mainly at the shareholder level. BDC distributions are largely ordinary income, reflecting the interest the BDC earns on its loans, and REIT ordinary dividends are also largely ordinary income. The 20% Section 199A deduction applies to qualified REIT dividends, lowering their effective top federal rate; some BDCs also designate amounts that may be eligible for the 199A deduction, but the treatment can differ from REITs and varies by BDC and by year. Both may also pass through capital-gain or return-of-capital components. Because these details are technical and situation-specific, you should read each vehicle's tax reporting and consult your CPA. Baker 1031 doesn't provide tax advice — confirm your specific treatment with a tax professional, as the rules can change.
What are the main risks of a BDC?
A BDC's dominant risks are credit and business risk plus leverage risk. Because a BDC lends to small and mid-sized private companies — which are often leveraged and can be more vulnerable in a downturn — its borrowers can default, especially in a recession, which can reduce income and erode net asset value. On top of that, BDCs themselves often borrow money to amplify returns, so leverage magnifies both gains and losses. Other risks include interest-rate exposure (though floating-rate loans can benefit from rising rates, the credit environment may worsen at the same time), valuation risk (the private loans are not exchange-traded, so their values are estimated), and, for non-traded BDCs, illiquidity. So a BDC's risk is fundamentally about whether its private-company borrowers can repay, which is corporate credit risk — quite different from a REIT's real estate risk. Understand that a BDC's high yield compensates for these real risks, and size any allocation to fit your risk tolerance.
Are there non-traded BDCs like non-traded REITs?
Yes — just as there are non-traded REITs, there are non-traded BDCs, and the structural parallels are close. A non-traded BDC is registered with the SEC but not listed on an exchange, so its shares don't trade daily at a market price. Instead, it's priced periodically at net asset value (NAV), offers only limited redemption-based liquidity (typically capped and potentially subject to gating), and is sold through broker-dealers to accredited or otherwise suitable investors after a suitability review. The reasons an investor might consider a non-traded version are similar to the REIT case: access to a private strategy (private credit) without daily price swings, in exchange for illiquidity and a longer hold. The trade-offs — limited liquidity, periodic appraisal-based pricing that can lag, fees, and a multi-year horizon — also mirror non-traded REITs. So if you understand the non-traded REIT structure, you already understand most of how a non-traded BDC behaves; the difference is what's inside.
Should I choose a BDC or a REIT?
It's less about which is 'better' and more about which asset class you want and why. If you want real estate exposure — income from rents, participation in property values, and a holding that historically behaves somewhat differently from stocks and bonds — a REIT is the right tool. If you want private-credit exposure — income from loans to private companies, often with floating-rate features that can benefit when short-term rates rise — a BDC is the right tool. Many investors actually hold both, treating them as distinct sleeves: a real estate allocation and a private-credit allocation, each diversifying the other. The key is to recognize that a BDC's yield comes with corporate credit and leverage risk that behaves differently from a REIT's real estate and rate risk, so they aren't interchangeable just because both pay attractive distributions. So decide based on the exposure you want and the role each plays in your portfolio, not on yield alone — and size each to your risk tolerance.
Are BDCs considered real estate investments?
No — BDCs are not real estate investments. A BDC lends to and invests in small and mid-sized private operating companies across many industries — software, healthcare services, manufacturing, consumer businesses, and more — none of which need to involve real estate. Its income comes from the interest on those loans, not from rents or property. By contrast, a REIT is, by definition, a real estate vehicle: it owns physical income-producing properties or holds mortgages secured by real estate, and to qualify as a REIT it must hold most of its assets in real estate and derive most of its income from real estate sources. So although BDCs and REITs share a similar pass-through tax structure and are both income-oriented, they belong to different asset classes entirely. If your goal is real estate exposure, a BDC won't provide it; you'd want a REIT (or a DST, or direct property) instead. Understanding this distinction prevents the common mistake of treating the two as substitutes.
Can a BDC be used in a 1031 exchange?
No — BDC shares cannot be used in a 1031 exchange. A 1031 exchange requires the exchange of like-kind real property held for investment or business use, and BDC shares are securities representing interests in a portfolio of private-company loans — not real property — so they don't qualify. The same is true of REIT shares, which are also securities and not 1031-eligible. If your goal is to defer capital-gains tax on the sale of investment real estate, neither a BDC nor a REIT is a direct option; you'd typically look to a replacement property or a Delaware Statutory Trust (DST), which is 1031-eligible like-kind real property. There is an indirect path involving REITs (a 1031 into a DST followed by a 721/UPREIT exchange into a REIT), but no equivalent exists for BDCs, since they have nothing to do with real estate. So a BDC is purely a private-credit investment with no role in 1031 planning. Confirm any exchange strategy with your tax advisor.
Why do BDCs and REITs get compared so often?
They're compared frequently because they share a similar tax architecture and a similar appeal to income investors, even though they invest in completely different things. Both are pass-through vehicles: each distributes roughly 90% or more of its income to shareholders and, by doing so, generally avoids entity-level corporate tax, so income is taxed mainly at the investor level. Both tend to offer higher yields than the broad stock market because of that distribution requirement. And both come in publicly traded and non-traded forms, with the non-traded versions sharing structural features like NAV pricing and limited redemptions. So from a structure-and-income standpoint, they look like cousins. But the comparison can mislead if it stops at the wrapper — because a REIT holds real estate while a BDC holds private-company loans. So they get compared because they're structurally similar income vehicles, but the comparison's real value is in highlighting that they offer exposure to two entirely different asset classes. Look past the shared structure to what each actually owns.
Do BDC yields rise with interest rates?
Often, yes — at least on the income side. Many BDC loans are floating-rate, meaning the interest the borrower pays adjusts with short-term benchmark rates. So when short-term rates rise, the interest income a BDC earns on those floating-rate loans typically rises too, which can push BDC distributions higher. This is a notable difference from many fixed-rate bonds, whose prices fall when rates rise. However, rising rates also raise borrowers' interest costs, which can strain the private companies a BDC lends to and increase the risk of defaults — so the benefit of higher floating-rate income can be partly offset by higher credit risk in the portfolio. REITs, by contrast, can face pressure on property valuations when rates rise (and mortgage REITs face spread pressure). So BDC income often benefits from rising short-term rates, but the broader credit picture matters too. The net effect depends on the rate environment and the health of the underlying borrowers — verify specifics with your advisor.
Are BDCs riskier than REITs?
Neither is universally riskier — they carry different kinds of risk. A BDC's dominant risk is corporate credit and business risk: it lends to small and mid-sized private companies that can default, especially in a recession, and it often uses leverage that magnifies both gains and losses. A REIT's dominant risks are real estate risk (falling rents, occupancy, or property values) and interest-rate risk (which pressures valuations and, for mortgage REITs, the rate spread). Which is 'riskier' depends on the economic environment, the specific vehicles, how much leverage each uses, and whether you're holding a traded or non-traded version. A BDC's typically high yield is, in part, compensation for taking on private-company credit risk — so a high yield should be read as a signal of risk, not just reward. So rather than ranking them, understand that each carries a distinct risk profile, and choose based on which exposure fits your portfolio and risk tolerance. Diversifying across both can spread these different risks, but doesn't eliminate them.
Can I hold both a BDC and a REIT in my portfolio?
Yes — and many income-focused investors do exactly that, treating each as a distinct sleeve. A REIT provides real estate exposure (income from rents and participation in property values), while a BDC provides private-credit exposure (income from loans to private companies, often floating-rate). Because the two are different asset classes driven by different forces — real estate fundamentals and rates for the REIT, corporate credit health for the BDC — holding both can add diversification, with each potentially performing differently under different economic conditions. The key is to size each allocation to your overall goals and risk tolerance, and to recognize that both carry real risk: distributions can be cut, values can fall, and non-traded versions of either are illiquid. So holding both can make sense as a way to diversify income sources across two asset classes, but it's not a guarantee of stability. Treat each as its own decision, confirm suitability for the non-traded versions, and don't over-concentrate in either. Past performance doesn't guarantee future results for either.
How does Baker 1031 help me compare BDCs and REITs?
We help investors understand how BDCs and REITs compare — what a BDC is, how BDC and REIT holdings differ, their income and risk profiles, the tax-treatment differences, and how to choose between private-credit and real estate exposure — so you can decide which asset class (or both) fits your goals and, if suitable, access appropriate offerings. REIT, non-traded-REIT, and related securities (including non-traded BDC interests where offered) are offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), and any recommendation follows a suitability review; non-traded and private vehicles typically require accredited or otherwise suitable investors and are illiquid. Baker 1031 does not provide tax or legal advice — your CPA handles how BDC and REIT distributions are taxed in your situation, including how the Section 199A deduction applies, which differs between the two. We help you understand the structures, weigh real estate exposure against private credit, and access suitable offerings when appropriate. Yields and returns are never promised; past performance doesn't guarantee future results.
Glossary
- BDC (Business Development Company)
- A closed-end investment company that lends to and invests in private companies.
- REIT
- A company that owns, operates, or finances income-producing real estate.
- Private Credit
- Loans made to private companies outside public bond markets — what a BDC holds.
- Senior Secured Loan
- A loan near the top of a borrower's capital structure, common in BDC portfolios.
- Floating-Rate Loan
- A loan whose interest adjusts with short-term benchmark rates.
- Closed-End Fund
- An investment company with a fixed share count; the BDC's structural form.
- Pass-Through Entity
- A vehicle that distributes income to avoid entity-level tax (REITs and BDCs).
- 90% Distribution Rule
- The requirement to distribute most income to keep pass-through status.
- Credit Risk
- The risk that a BDC's borrowers default on their loans.
- Leverage Risk
- The risk from a BDC's own borrowing magnifying gains and losses.
- Equity REIT
- A REIT that owns property and earns income from rents.
- Mortgage REIT (mREIT)
- A REIT that finances real estate and earns mortgage interest.
- Net Asset Value (NAV)
- The periodic per-share value used to price a non-traded BDC or REIT.
- Non-Traded BDC
- An SEC-registered BDC not listed on an exchange — illiquid and NAV-priced.
- Section 199A Deduction
- The 20% deduction on qualified REIT dividends (and some designated BDC amounts).
- Suitability Review
- Assessing whether an illiquid, non-traded vehicle fits the investor.
Sources & References
- U.S. Securities and Exchange Commission. Investor.gov — Business Development Companies (BDCs)
- U.S. Securities and Exchange Commission. Investor.gov — Real Estate Investment Trusts (REITs)
- Nareit. What's a REIT (Real Estate Investment Trust)?
- FINRA. Real Estate Investments
Disclosures
This article is published by Baker 1031 Investments, LLC for general educational purposes for accredited investors and is not an offer to sell or a solicitation of an offer to buy any security, nor is it tax, legal, accounting, or investment advice or a recommendation. Any securities offering is made solely through a sponsor’s private placement memorandum (PPM) following a suitability determination. Securities offered through Aurora Securities, Inc. (ASI), member FINRA / SIPC; Baker 1031 Investments is independent of ASI.
Oil & gas mineral and royalty interests and DST programs are speculative, illiquid securities sold only to verified accredited investors and involve substantial risk, including possible loss of principal, commodity-price and production-decline risk, lack of control, and the risk that an intended 1031 exchange fails to qualify for tax deferral. Whether a particular interest qualifies as like-kind real property is a fact-specific legal determination that varies by state and by the terms of the instrument. Tax results depend on your individual circumstances. Consult your own CPA and attorney before acting. Past performance does not guarantee future results.
