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REIT 101

REIT 101 | What is a REIT

REIT 101 | What is a REIT

REIT 101 |What is a REIT?

The REIT 101 definition of a REIT, Real Estate Investment Trust, is that it most commonly refers to a business that buys, develops, manages and sells true estate property. REITs enable individuals to invest inside a professionally-managed portfolio of actual estate properties.  One of the biggest benefits of investing in a REIT is it’s liquidity (ease of liquidation of property into cash). One particular explanation for the liquid nature of REIT investments is the fact that its shares are largely traded on key exchanges, making it easier to buy and market REIT assets/shares than to acquire and market properties in private markets.

REIT 101 point 1: A REIT guarantees an increased return around investment (ROI) and as an investment they are regarded as being safer than traditional stocks.

REIT 101 | Types of REITs

There are three different types of REIT’s – Equity REITs, Mortgage REITs, and Hybrid REITs.
  • Equity REITs: Equity REITs invest in and individual properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties’ rents.  About 96% of REITs in the US are Equity based.
  • Mortgage REITs: Mortgage REITs offer in investment and ownership of house mortgages. These REITs loan cash for mortgages to owners of real estate, or buy current mortgages or mortgage-backed securities. Their revenues are created mostly by the interest that they earn on the mortgage loan loans.
  • Hybrid REITs: Hybrid REITs combine the investment methods of equity REITs and mortgage loan REITs by investing in equally properties and mortgages.

REIT 101 | Final Thoughts

REITs are required to distribute 90% of their income to their investors. Individuals can make investments in REITs both by acquiring their shares directly on an open exchange or by investing inside a mutual fund that focuses on public real estate.

 

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REIT 101 point 2: For most REIT investors the biggest attraction to REITs is that they are a liquid, dividend paying investments in the real estate market.

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