This article talks about REITs and gives you the basics of what all is involved with a REIT. If you have never heard of REITs then this is an article that you need to read now. Check it out below.
A real estate investment trust (REIT) is a corporation that has been established to make money in real estate. A REIT uses funds , pooled from a group of investors, to buy buildings, or, less often to buy mortgages on buildings.Most REITs specialize in a particular type of real estate-such as hotels, shopping centers,self-storage units, hospitals and nursing homes, housing,or office buildings-and may concentrate their purchases in a specific geographic area.
As with most corporations , the REITs management team is responsible for running a profitable business, which means,with REITs in particular, generating a steady income of revenue for its investors.Equity REITs that invest directly in buildings generate income from rent, which is, in turn,paid to investors as a monthly or quarterly dividend.Dividends often increase as rents increase, which means the investment can act as a hedge against inflation.
On the downside, rents, and therefore dividends, may drop if there is a market downturn and rental spaces go empty.That can happen , too, if the properties the REIT owns aren’t attractive to potential renters or if the market for a particular type of property is saturated.Because of the way REITs pay income,they provide a relatively stable cash flow,which may make them a suitable investment for people who are looking for a supplemental, steady stream of income.
For example REIT income may be used to bolster pension or other retirement income,pay college expenses,set up a charitable remainder trust,or make new investments.There are 2 ways you can invest in a REIT. Some REITs are public corporations , listed on a national exchange, like the New York Stock Exchange (NYSE) or the Nasdaq Stock Market or on a quotation service , like the OTC Bulletin Board.
You can buy and sell shares in these REITs the same way you do shares in any publicity traded company.Private, non-traded REITs on the other hand, are available only through direct participation programs (DPPs) offered by the REIT’s sponsor and distributed through brokerage firms or other financial institutions.A non-traded REIT usually pools money from 1000 or more investors to purchase the properties it will manage.
As an investor , you are part owner of the actual physical shareholder in the REIT corporation.To invest in a non-traded REIT, you need to meet financial suitability standards-often a minimum of $ 150.000 net worth (excluding your home or car) as well as make a minimum initial investment established by the REIT.Non-trade REITs,as their name implies-have no formal secondary market-no NYSE or Nasdaq where you can liquidate your shares or resell your interest.
Since a REIT’s investment term is typically between 8 and 12 years, and may be longer, you’ll need to be able to do without that capital you’ve invested in the REIT for that period of time.As with any other investment, you should research the REIT before you commit your money.With both types of REIT’s you should review the expertise and track record of the management team,and the REIT’s business plan and sources of outside capital.
For a traded REIT, you’ll want to evaluate debt levels and performance history.With a non-traded REIT, you may want the opinion of a third-party professional evaluator,which your brokerage firm is likely to have secured.
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