Getting Started on Property Business: What is Real Estate Investment Trust?

Generally referred to as “REITs”, Real Estate Investment Trust is a form of investment created by the Congress in 1960s to give Americans the opportunity to invest in real estates. Real estates that are owned or financed by REIT companies are income-producing real estates. The existence of REITs allows average people to own or finance properties in the same way shareholders benefit by owning stocks in the stock market and by owning shares in corporations.

Common Types of REITs

There are numerous kinds of REITs that correspond to their own industry. Investing in these REITs must be backed with the knowledge and sufficient research to the corresponding industry, just as in the matter of any type of investment.

REITs may be publicly traded, in which the REIT company is registered and their shares are publicly listed. REITs may also be registered publicly, but their shares are not sold to the public. REITs may also be a private company that isn’t publicly registered and their shares are held privately. Regardless of this, REITs must follow a guideline to be legally acknowledge as a REIT:

  • The company must be a taxable entity (corporation). REITs must primarily own or finance real estate. Their investment must at least consist of 75% assets in real estates, cash, or US Treasuries,
  • REIT companies must pay a minimum of 90% of their taxable income to their shareholders in dividends.
  • The company must have at least 100 shareholders
  • Five or fewer individuals must not own more than 50% of the company’s shares.

Here are the most common types of REITs.

Residential REITs

Investors are advised to be aware of population and occupational growth when it comes to considering to invest in residential REITs. Naturally, the biggest residential REITs tend to focus on areas with the highest prices on individual houses, where people tend to prefer renting. Large urban centers and metropolitans such as Los Angeles and New York are their biggest focus.

Retail REITs

The financial state and health of the retail industry may very well affect the state of the REITs that focus on retails. Make sure to make an informed decision through industry assessment before jumping into retail REITs despite the sheer size of the retail industry and thus, retail REITs. Assessing future possibilities such as the gradual shift in trend to e-commerce should also be considered.

Healthcare REITs

Medical centers, hospitals, retirement houses, nursing facilities are some of the establishments healthcare REITs tend to focus on. Just as the previous REITs, the healthcare REITs financial state highly corresponds to the industry’s financial state.

Office REITs

REITs that focus on office buildings usually come from long-term leases. Investing in office REITs may depend on a large variable of factors, from employment rate, job vacancy, to the general economic state and growth of the area at large.

These are simply some of the most common types of REITs and the list is by no means exhaustive. You might be interested in a certain type more than the others. Make sure to do a background research for both the REITs company as well as the industry you’d like to focus on.

 

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