A real estate investment trust (REIT) is an investment fund or insurance that invests in immovable assets producing profits. Modeled like mutual funds, REITs pool other investors’ money. The fund is managed and owned by a holding corporation that contributes capital to investment in commercial property, such as office and residential buildings, factories, schools, shopping malls, student accommodation, hotels, and timberlands. This helps individual investors to receive dividends from real estate investments without the need to purchase, maintain, or fund assets themselves.
A real estate investment firm receives special tax considerations, offers high returns for investors, and is publicly traded on a securities market. The two main styles of REITs are equity REITs and mortgage REITs (mREITs). REITs generate a gentle income stream for investors but offer little within the way of capital appreciation. Like mutual funds, realty investment trusts allow both small and large investors to amass ownership in assets ventures.
More than 30 countries have developed REIT regimes around the world, with more countries in the works. The expansion of the REIT approach to real estate investment worldwide has also increased understanding and acceptance of investing in global securities of immovable’s. It is regulated by legislation which aims to provide investment opportunities and strong revenue vehicles. In other words, it’s like stocks traded within the market. Assets during a REIT portfolio may include apartment complexes, shopping centers, health care facilities, hotels, fiber cable networks, cell towers, and office buildings, retail centers, self-storage, timberland, and warehouses for energy pipeline services.
The benefits of investing in a REIT:
- Transparency – REITs traded on major stock exchanges operate to regulatory and reporting purposes under the same rules as other publicly listed stocks.
- Liquidity – Shares are freely available for sale and purchase on the market.
- Dividends – provides investors with a reliable income stream, with 90 percent or more of their earnings being returned.
- Diversification – Including a REIT in an investment portfolio is a benefit when other stocks or securities are down because REITs typically have a low correlation with other asset class results.
- Performance – historically known to perform well due to a steady appreciation of commercial properties over the long term.
Generally, REITs are concentrated in a specific field of real estate. Diversified and specialty REITs, however, can hold various types of properties in their portfolios, such as a REIT consisting of both office and retail properties. REIT distributions have a payout ratio of 100 percent at lower rates on all profits. The dividends paid out by REITs look less appealing relative to bonds which have higher coupon rates. Increasing numbers of defined-benefit and defined-contribution investment programs often include REITs.