A lot of people today are looking for good properties where they can invest their hard-earned savings. Here we will introduce one of the more popular types of passive income, it has been around since the 60’s and if you are not familiar with it, it is call eda Real Estate Investment Trust or REIT.
REITs have been around for quite a while. They first started in the US then became popular in Asia. In 1960, the US Congress created REITs when President Eisenhower signed into law the REIT Act which was contained in the Cigar Excise Tax Extension of 1960. It was created to give all people a chance to profit from investing in the income-producing real estate. It enables anybody to have ownership in property a similar way they invest in businesses through the purchase of stock.
What is a REIT?
So, what is REIT or Real Estate Investment Trust? REITs are companies that own and operate income-generating real estate assets, which include offices, apartment buildings, hotels, warehouses, shopping centers and highways.
How does a REIT function?
A REITs is funded by pooling investors’ money to buy commercial or residential buildings that are professional managed. The company then gains income from the rent of its tenants and shares the income with the investor’s portion of the profit.
A REIT normally gains income from lease installments or interest on real estate debt. You just own a share of the mall, office, warehouse, hotel or apartment but you don’t own a tangible item directly. As an investor you get an exposure to real estate without having the daily work of operating, owning and financing the properties.
REIT Guidelines
The most important thing to know about REIT is that 90% of its taxable income has to be distributed every year so investors get regular and equal dividends.You can check other guidelines here www.sec.gov/fast-answers/answersreitshtm.html if you are from the US.Unlike typical corporations, a REIT is exempted from corporate taxes as long as it satisfies the requirements from SEC. But investors must still pay taxes on the dividends as part of their personal income taxes.
Different types of REITs
These are the two categories of REIT.
Equity REIT
It is the type of REIT that puts investment in and own income-producing real estate properties and give investors the chance to put resources into these portfolios. As mentioned earlier, they must distribute at least 90% of the portfolio’s income to its shareholders in the form of dividends.
Mortgage REIT
This type of REIT offers financing to incoming-producing real estate by giving home loans and home credit and gaining from the interest of the investments.
Investing in REITs
Real estate investment trusts can offer investors stability, value and solid returns.One of the great things about a REIT is that it provides both income and capital gain. It offers diverse benefits over time. Because REITs own real assets, they also provide some security for inflation. When inflation comes, typically rents on apartments, prices of hotel rooms, commercial lease space, etc. also increase, and so is the income you receive from your REIT. It is also has a high dividend payout according to a Nareitre search (a leading REIT research organization). Dividends and share price appreciation are two ways to make money from a REIT.
Investing in REITs requires the same due diligence as what you do with stocks since REITs functions like it. It gives the investors the benefits of real estate exposure along with the exchange ability of public traded stock.