What Is Real Estate Investment Trust?

What Is Real Estate Investment Trust?

by

richardgere

A real investment trust (REIT) is a corporation, trust or association that acts as an investment agent specializing in real estate and real estate mortgages. REIT operates like an investment trust. It can be publicly or privately held. REIT provides a way for investors that they can access property assets without having to buy property directly. It is a quoted company that owns and manages income-producing property, either commercial or residential. It has also a tax efficient nature. Some REITs engage in financial real estate. Its structure has designed to provide a real estate investment structure similar to the structure mutual funds provide for investment in stocks. REIT is already established in many developed economies such as US, the UK, Europe, Asia and Australia.

Advantages of REIT

REITs are of many different types and focus on different properties such as industrial, commercial, residential and office accommodation. So it is important to consider which area is best for your requirement. It has many advantages i.e.

REIT has access to property investment for minimal outlay-opportunities for growth, income and portfolio diversification.

It has also the access to UK commercial property, e.g. shopping centers and retail parks.

There is no responsibility for property that is held in a REIT on the part of the investor.

It allows liquidity for investors without impairing security for tenants. It means investors can sell shares in a listed REIT at any time, without the costs and delays involved in selling properties.

This is an income producing investments that are required to distribute the majority of profits each year. So it generates a regular income stream for investors.

It has the limits on borrowings that also protect the income stream to investors, by ensuring that income is not wholly allocated to debt repayments.

REIT has also beneficial for small investors such as

Small investors can participate in the property market without any property transfer costs because the entry cost for a REIT is the price of a single share.

It is designed to produce regular income returns to the shareholders so they may give a new alternative investment option for retirement savings.

Disadvantages of Real estate investment trust

There is no investment that is perfect and without any disadvantage. So Real Estate Investment Trust has also some negative points as well as positive.

REIT s share prices don t grow at lightning speed. It is not a good thing for investors.

If investors are looking for a ten-bagger so they can pay the IRS a lot of capital gain taxes, so REITs are not for them.

Other disadvantage is to buying any single Real Estate Investment Trust, is that they are specialized. They all concentrate on particular kinds of real estate.

Its share prices can drop when the property values fall.

In REIT, rising interest rates hurt profitability.

Not all REIT dividends quality for 15 percent tax rates. Some are taxed as ordinary income.

What should investors look to invest in a REIT?

If investors are going to invest in Real Estate Investment Trust they should look for publicly traded real estate companies that have some characteristics such as

The company should have a demonstrated ability to increase earnings in a reliable manner. Always look for those companies that have properties in which rents are below current market levels. These kinds of properties provide upside potential in equilibrium markets and downside protection when economy growth slows.

The companies must have strong operating characteristics, including effective corporate governance procedures, conservative leverage and a clearly defined operating strategy for succeeding in competitive markets.

Summary

There are many plans that are increasing allocation to real estate for the solutions of many problems. REITs also provide the opportunity for capital appreciation. It seems more effective in extending the lives of retirement portfolio, with the combination of investment characteristics.

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