On behalf of its shareholders, a Real Estate Investment Trust (REIT) owns or funds income-generating real estate investments.
With the help of real estate investment trusts (REITs), anybody may profit from real estate without taking on the hassle of managing their own properties. Adding them to your financial portfolio is a terrific way to spread out your risk.
Keep reading to get knowledge about REITs and how to invest in them.
WHAT IS A REIT? IS EXPLAINED HERE.
How to Identify Real Estate Investment Trusts
Diverse Real Estate Investment Trusts
A Guide to Investing in Real Estate Investment Trusts
How Real Estate Investment Trusts Calculate Profits and Distributions
Budgeting For Real Estate Investment Trusts
Real Estate Investment Trusts: Pros and Cons
Real Estate Investment Trusts: The Downside
Questions That We Get A Lot
Just what is a Real Estate Investment Trust?
Like a holding corporation, a REIT invests in and manages real estate. Real estate investment trusts (REITs) often focus on assets that are used in a certain industry.
REITs employ the money of investors to acquire properties that may produce income from rentals or interest on the property, and by law, they must pay out 90% of their total yearly earnings in dividends to shareholders.
Investors in REITs pay a minimal rate of tax on dividend distributions.
How to Identify Real Estate Investment Trusts
By filing IRS Form 1120-REIT, a firm may elect REIT status, shielding it from corporation tax and avoiding double taxation of shareholder profits.
The following regulations, as out by the SEC and the IRS, must also be met:
Except for its REIT classification, the firm must be a federally taxable corporation registered in at least one state.
After its second year in business, a REIT needs 100 shareholders to continue.
In the second half of the fiscal year, no more than five people should own more than half of the company’s shares.
Real estate investment trusts (REITs) are publicly traded companies whose ownership shares may be bought and sold by anybody.
To qualify as a REIT, a company’s total revenue must derive at least 75% from real estate or real estate-related activities. As such, it should put 75% of its capital into the property market.
Only other REITs, QRSs, and TRSs qualify as permissible corporations for a REIT to possess more than 10% of the voting rights of.
The company’s revenue from service fees and other non-real estate enterprises that do not qualify should not exceed 5% of the total.
At least 90% of a REIT’s taxable income must be distributed to shareholders each year in the form of dividends. If it keeps its earnings, it will have to pay taxes just like any other business.
Every year, REITs are required by law to send out letters to its shareholders inquiring about the beneficial ownership of their shares. The REIT might be fined for late submission.
Diverse Real Estate Investment Trusts
The two primary types of real estate investment trusts are equity and mortgage.
Real Estate Investment Trusts With Equity
Equity REITs rely heavily on rental income from their property holdings for funding. A large majority of REITs are stock REITs. Equity real estate investment trusts (REITs) may invest in both residential and commercial properties.
Equity REITs provide the impression of greater financial security since their income comes from the regular stream of rentals paid by tenants.
Types of Equity Real Estate Investment Trusts
Commercial Real Estate Investment Trusts (REITs) that specialize in investing in stores and shopping centers. They profit from the rent paid by the tenants that occupy these buildings. A quarter of all REITs are focused on retail.
Equity real estate investment trusts (REITs) that invest in office buildings and collect rent from long-term tenants are called “office REITs.” Tenants often commit to a lease for three to 10 years. The majority of office REITs are located in expanding metro areas.
Real Estate Investment Trusts (REITs) that focus on housing are known as “residential.” Based on the statistics, REITs only hold 2% of apartment buildings in the United States. Typically, they will purchase multi-family homes with two to four units, or apartment complexes with five or more units. Housing REITs, like office REITs, are concentrated in cities that are experiencing rapid population and employment expansion. Dividend yields for residential REITs were 3.97 percent in 2018—higher than the average for all REITs.
Healthcare REITs: There are 33 healthcare REITs globally with a market capitalization that exceeds 127 billion dollars, and 90% of healthcare REITs are in the US. Healthcare real estate investment trusts are companies that invest in healthcare properties such nursing homes, hospitals, retirement communities, and clinics. About 17% of the total US GDP is spent on healthcare. Medicare payments and rent bring in money for them. Healthcare REITs have a higher dividend yield than businesses in the global real estate index.
Real Estate Investment Trusts for Mortgages
Mortgage REITs invest in high-interest, fixed-rate mortgages and generate revenue from monthly interest payments. The difference between the variable and fixed interest rates is where they earn their money.
Both business and residential mortgages may be held by a mortgage REIT. Mortgage REITs are a dangerous investment option. High leverage and the resulting volatility mean that mortgage REITs make up just approximately 10% of the total number of REITs.
You should get additional investment knowledge before putting money into mortgage REITs.
A Guide to Investing in Real Estate Investment Trusts
Putting your money into a real estate investment trust that already exists is your best bet. Buying shares of a REIT or participating in a scheme like an Authorized Unit Trust that invests in REITs are both viable options for anyone interested in the real estate industry.
Mutual funds and ETFs focused on real estate investment trusts (REITs) are two ways to acquire REIT shares. Exchange-traded funds (ETFs) are a kind of publicly traded investment company. The proceeds from the selling of the stock are used toward carefully planned investments.
Here is a brief primer on how to choose between publicly listed and privately owned real estate investment trusts (REITs).
#1 Real Estate Investment Trusts
These REITs function similarly to stocks and ETFs in that they can be bought and sold on major stock markets like the New York Stock Exchange and the Nasdaq. There are about 225 publicly-traded REITs in the U. S.
When it comes to publicly listed REITs, there is no set minimum or maximum investment amount. Online brokerage fees typically range from $8 to $10 per trade.
Ninety percent of net income is distributed as dividends to investors on a weekly or monthly basis. Assets of investors in public REITs always gain and rise in value based on macroeconomic trends and the performance of the firm.
