The Definition of Real Estate Investment Trust

Elise Williams

2024-04-18 14:00:40 • Filed to: Software for Real Estate • Proven solutions

REITs (Real Estate Investment Trusts) are perfect ways of creating a passive income from property for as long as you want. Learn how to invest in REITs and what they really are. There're so many great things about REITs for beginners and seasoned investors alike, especially those seeking less risky property investment and the best real estate investment trusts is a perfect place to begin.

The Meaning of Real Estate Investment Trust

REIT refers to companies owning, financing and operating real estate that produce some income. REITs are only so if they meet specified regulatory guidelines and mostly trade on big world exchanges while providing liquid stake to their investors. REITs have been in operation in the United States as early as 1960 after the Cigar Excise Tax Extension amendment of 1960 by Congress. They operate largely as mutual funds operations by allowing different investors a level of ownership in income-generating commercial type of property such as skyscrapers, warehouses, office building, malls, and hotels to apartment complexes.

REITs usually specialize on a certain sector in the property market, such as office, homes or healthcare. Once the operated space by the REIT is occupied, the rent payments are collected and passed on as dividends to investors. REITs must invest a minimum 75 percent of their total asset in cash, property or United States Treasuries among other requirements.

How Do REITs Work

One of the best ways of increasing one's net worth is investing in property markets. However, due to financial reasons, not many people are able to invest in commercial real estate. REITs offer such investors with some amount of finances the chance to pool their resources together and invest in huge commercial property investments to reap profits for the longest time possible. REITs accord individuals the benefits that come with owning property without getting their hands dirty as landlords.

To be considered as REIT, companies are required to ensure a minimum 90 percent of the entire taxable income has been distributed to shareholders annually. In fact, lots of REITs actually offer 100 percent pay outs of the taxable income. REITs are also pass-through entities, which generally mean they don't have to part with state or federal income taxes but pass the responsibility to shareholders to pay the taxes. However, only tax on dividends are passed and not tax losses.

REITs for the greater part follow a clear, straightforward and comprehensible business model. Essentially, spaces are leased and rent collected on the property generating income for the company; it's then paid out to each investor in dividend form. Investing in REIT is generally investing in property portfolio moving the world (REITs properties include malls, office, healthcare etc.). They include private REIT, Public Non-listed REIT, Mortgage REIT and Equity REIT.

How to Invest in REITs

Investing in REITs can be done in different ways. This includes buying shares in a distinct REIT, perhaps trading on stock exchanges like other forms of public stock. Shares can also be bought in ETF (exchange-traded fund) or REIT mutual funds. A good example is the American model where over 81 million individuals are already REITs invested via financial funds and retirement savings.

Through a financial advisor, investment advisor or broker a potential investor can get into REIT. The advisor offers different recommendations as per the financial objectives of the investor. REITs offer investors chances of investing in different REIT portfolios, including private and public non-listed REITS.

REIT growth in earnings is accomplished once higher revenues are accomplished, including new business prospects and lower costs. As increase in rents and building occupancy increase the revenue growth instantly grows. Other REIT growth opportunities include development programs and acquisition of extra property as far as the economic returns attained from any of the investment opportunities is higher than the financing costs. Note that a tax document such as Schedule K-1 isn't required to venture n REITs.

Buildium - Real Estate Software That's Compatible with Investment Trusts

As you think about the best REITs to invest in you might end up with lots of real estate investment portfolios that managing effectively becomes a headache, especially if you're always busy with lots of investments and tracking them is always hectic to ensure none has been left behind. Like other property investments, real estate investment trusts aren't easy to track and benefit so much from real estate software such as Buildium.

Try Buildium for Free >>>

It integrates with lots of industry leaders in real estate with ease of integrating with your REIT, an integrated system so efficient it helps you remain ahead every time. Buildium perfectly balances all the diverse elements any property owner and manager engages in during the management of a property firm or portfolio.

Free Download or Buy PDFelement right now!

Buy PDFelement right now!