A real estate investment trust or REIT (pronounced /ˈriːt/ rhymes with street) is a tax designation for a corporate entity investing in real estate that reduces or eliminates corporate income taxes. In return, REITs are required to distribute 90% of their income, which may be taxable, into the hands of the investors. The REIT structure was designed to provide a similar structure for investment in real estate as mutual funds provide for investment in stocks.[1]
Like other corporations, REITs can be publicly or privately held. Public REITs may be listed on public stock exchanges like shares of common stock in other firms.
The key statistics to look at in a REIT are its net asset value (NAV), adjusted funds from operations (AFFO) and cash available for distribution (CAD).
What Does Real Estate Investment Trust - REIT Mean?
A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages.
REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.
Equity REITs: Equity REITs invest in and own properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties' rents.
Mortgage REITs: Mortgage REITs deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans.
Hybrid REITs: Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages.
A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages.
REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.
Equity REITs: Equity REITs invest in and own properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties' rents.
Mortgage REITs: Mortgage REITs deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans.
Hybrid REITs: Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages.
REITs can be a good investment choice. There are a few different kinds of REITs, but one that seems to be more popular is the commercial real estate REIT. Something like a Cole REIT would be a good example as their investments are in retail, office and industrial real estate. I recommend a Cole REIT if you are looking to invest because they have a diversified portfolio and are not specific to one area or region making them more diversified than some REITs.
ReplyDeleteThanks for the recommendation Katie, Cole REIT sounds like a sound investment. I looked into the REIT a bit and found out that Cole REIT is also offering a new REIT that specializes in office and industrial real estate so they must be doing well.
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