A real estate investment trust (REIT) is a security traded on major stock exchanges like a stock that owns — and in most cases manages — income-producing real estate or related assets. Known as mortgage REITs, most REITs finance income-producing real estate by buying or lending mortgages and mortgage-backed securities and earning interest on the investments. One of the main reasons to invest in REITs is that they can acquire real estate—residential, commercial, or retail—without having to directly purchase individual properties.
If you’re looking to make some money from your portfolio, REITs often seem like an attractive way to do it. Investors looking for cash and income growth may consider REITs as a long-term solution. Investing in certain types of REITs, such as hotel real estate, is not the best choice during an economic downturn.
Instead, the REIT buys and develops real estate primarily to manage it as part of its own REIT investment portfolio. Unlike other real estate companies that build properties with the intent to sell them, the main purpose of a REIT is to develop, manage and include real estate in their investment portfolios. Typically, a REIT rents out the property it owns and collects rent as its main source of income.
According to the Securities and Exchange Commission, a REIT must invest at least 75% of its assets in real estate and cash and earn at least 75% of its gross income from sources such as rent and mortgage interest. Under the US Federal Income Tax Act, a REIT is “any corporation, trust, or association that acts as an investment agent specializing in real estate and real estate mortgages” within the meaning of Section 856 of the Internal Revenue Code.
Mortgage REITs – REITs hold mortgages on real property and earn interest or other payments by financing the property. Equity REITs – REITs directly own and manage a portion of the property, collect regular rents and maintain the property like a traditional owner. Hybrid REITs are typically companies that use the investment strategy of equity REITs and mortgage REITs. REITs specialize in investing in a variety of income-producing properties.
These are some of the main categories and REITs can own just about any type of property. REITs invest in a wide range of property types, including offices, condominiums, warehouses, malls, healthcare facilities, data centers, cell towers, infrastructure, and hotels. REITs invest in real estate and earn from rentals, property sales, and dividends.
Investments in real estate securities (including securities registered by real estate investment trusts (REITs)) may be affected by the overall performance of the equity markets and the real estate sector. as a rule, capital for investments in bonds Owning and renting real estate can be a solid and reliable investment, but the form of the investment vehicle can adversely affect the return on investment.
REITs raise capital from numerous investors to purchase a portfolio of real estate. Congress established REITs to allow individual investors to invest in large-scale income-generating real estate. Only in the last decade have individual investors started using REITs. Reasons for this include low interest rates that forced investors to look beyond yield-producing investment bonds, the emergence of real estate-focused mutual funds, and up until the real estate downturn of 2007.
For those looking for additional opportunities, there are several ways to invest in REITs, an asset class that has performed well over time. Instead of buying individual REITs, you can also invest in REITs and ETFs for instant diversification at an affordable price. Many brokers offer these funds, and investing in them requires less effort than finding individual REITs to invest in.
If you don’t want to trade individual stocks of a REIT, it may make sense to simply buy an ETF or mutual fund that you control and invest in a range of REITs for you. If you own mutual funds that invest in stocks and bonds, rather than going out and buying real estate for rent, REITs will give you the opportunity to enter this real estate industry, explains Niv Persaud, CFP, company CEO and founder, Financial Planning in Atlanta, Transition planning and guidance. Investing in REITs is a great way to diversify your portfolio beyond traditional stocks and bonds and has the appeal of high dividends and long-term capital appreciation. Public REITs also offer the most liquid stocks, meaning investors can easily buy and sell REIT stocks, for example, much faster than investing in and selling retail properties themselves.
This type of REIT is registered with the SEC and publicly traded on the major stock exchanges, and is likely to offer public investors the best opportunity to profit from individual investments. You can buy shares in a REIT to access its real estate investments and make the property part of your investment portfolio without actually managing the property yourself. However, REITs and REIT funds, in which most investors invest, are publicly traded and offer liquidity similar to other publicly traded securities.
The regulation, commonly referred to as the Real Estate Investment Trust, was put in place in July 2006 by the Saudi Arabian Capital Market Authority. The regulation did not allow funds to be traded on the stock market and required all funds to be structured by investment firms licensed by the CMA, with the developer and other key persons present. Since the introduction of REITs in 1960, REITs have become popular and widespread in real estate businesses, including multi-family residential, industrial, retail, office, warehouse, single-family, and others.