For RIAs Considering Real Estate Mortgage REITs for their Clients

RIAs exploring real estate mortgage REITs on behalf of their clients are often seeking investment structures that combine security with reliable income. These vehicles are built around collateral-backed lending, conservative loan-to-value standards, and disciplined underwriting designed to preserve principal while delivering consistent cash flow. By focusing on short-term lending strategies tied to tangible real estate assets, mortgage REITs can help advisors diversify portfolios and provide clients with an alternative investment option less correlated to traditional markets.

Due Diligence Checklist: What RIAs Should Review Before Recommending a Private Mortgage REIT

When reviewing private mortgage REITs, RIAs must carefully evaluate both the structure of the fund and the expertise of its management team. Key areas to review include:

• Strategy and management - Evaluate the manager’s experience and track record in previous funds and across varying economic conditions. 
• Investment strategy -  Determine whether the fund focuses on residential or commercial properties, and whether its emphasis is on senior debt, mezzanine debt, or a combination. The strategy must align with the client’s objectives and risk tolerance.
• Portfolio diversification -  Assess how well the REIT diversifies across asset classes, borrower types, and property uses to reduce concentration risk.
• Credit risk - Review the underwriting process, conservative loan-to-value ratios, and property-level due diligence to ensure the mortgages backing the fund are sound.
• Suitability - Confirm that clients qualify as accredited investors and understand the nature of private offerings.
• Tax implications - Ensure clients understand the tax treatment of REIT distributions and reporting obligations. As per the IRS, REITs must distribute at least 90% of taxable income as dividends and comply with asset and diversification standards.
• Liquidity constraints - Review the lock-up period, redemption policies, and extension terms. Clients should be fully aware that capital may be tied up for extended periods compared to traditional public investments.

Fund Protection and IRS Requirements

Private mortgage REITs are generally structured to meet Internal Revenue Service (IRS) rules for favorable tax treatment. These include requirements to distribute most taxable income and to adhere to specific ownership and income-source tests. As per the IRS, to maintain its REIT status, an entity must distribute at least 90% of its taxable income as dividends and meet asset and diversification thresholds. Offering documents outline how each fund complies, along with details on distributions and investor qualifications. Because tax treatment depends on individual circumstances, investors should review official fund materials and consult with tax professionals.

How This Fits into an RIA’s Allocation Framework

Private mortgage REITs can serve as part of a well-constructed alternatives allocation. Their emphasis on collateral-backed loans, conservative LTVs, and recurring cash flow provides stability while allowing portfolios to adjust more frequently to prevailing conditions. For RIAs, they are best positioned as a complement to traditional equities and bonds, helping pursue secured, risk-adjusted returns that align with long-term strategies.

Why Investors Trust Red Tower Capital

Since 2011, Red Tower Capital has been offering rewarding alternative investment opportunities for qualified investors. Our experienced team helps income-oriented investors participate in real estate by investing in our mortgage funds.  

For investors, this expertise translates into a carefully structured alternative investment option that offers consistent, reliable high-yield returns secured by real estate, therefore less subject to market volatility. Transparency, client service, and a commitment to delivering consistent returns remain central to every investment decision.

Explore how Red Tower Capital’s core values and investment offerings align with your clients investment goals. Visit  our website or contact us for more information.