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What are Real Estate Investment Trusts? (And How to Buy Them)

What are Real Estate Investment Trusts? (And How to Buy Them)
  • Opening Intro -

    Real estate investment trusts, or REITs, are an asset that allows individuals to make an investment in income-producing, larger-scale real estate.

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What are REITs?

Real estate investment trusts, or REITs, are an asset that allows individuals to make an investment in income-producing, larger-scale real estate. A REIT is a company that is in charge of the ownership and management of these real estate properties, as well as other assets similar in nature.

What can REITs include?

Some of these properties could include offices, malls, apartment houses, hotels, and storage areas, as well as mortgages and loans. A REIT is unlike real estate companies because they do not actually build properties to sell, but instead acquire and develop these properties to include in their investment portfolio.

What is the advantage of REITs?

REITs give the common investor the ability to purchase a portion of the revenue from real estate property, without having to actually buy or own any of the real estate.

How are REITs traded?

REITs are usually traded through the public stock exchange and are backed by the SEC. There are also non-traded REITs, which are still backed by the SEC but are not on the public stock exchange.

It is important to understand if a certain REIT is public traded before purchasing any shares, as pros and cons exist for purchasing either of these assets.

Why invest in REITs?

REITs are a great way to add real estate investments to your portfolio. These investments also usually offer more attractive dividend yields than other investments.

Are non-traded REITs safe investments?

Non-traded REITs have certain risks to consider as well. For one, it is more difficult to sell these in the open market, as they are not as liquid as other investments. If an investor would need to make money fast, a non-traded REIT may not be the best way to go.

Non-traded REITs also do not offer the exact value of their share price until 18 months after the offer closes. That would mean it could take years after a profit from the investment could be seen. For a certain time period, it would be hard to see the value of your non-traded REIT and it’s fluctuations in the market.

Are non-traded REITs worth it?

Lastly, non-traded REITs provide a higher dividend yield than publicly-traded REITs, but they typically pay distributions that exceed their funds’ income from operations. They may use offering income and loans to accomplish this. This would reduce the share’s value and the cash of the company which may be used to purchase more assets.

How are non-traded REITs managed?

Non-traded REITs also are managed externally as opposed to by their own employees. This could eventually mean conflicting interests with shareholders. For example, the REIT could pay their manager for property acquisitions and assets, but these fees may not be in the best interest of the shareholders.

How can I buy a public traded REIT?

An individual could buy a public traded REIT by simply purchasing them through a broker. These investments are openly listed on a major stock exchange.

other valuable tips:

How can I buy a non-traded REIT?

A non-traded REIT share could also be purchased through a broker but may require you to seek out one that would participate in these specific offerings. Other options available are a REIT mutual fund or a REIT exchange-traded fund.

Image Credit: real estate investment trusts by Pixabay

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