REIT is short for real estate investment trust. It is a type of trust that specializes in holding real estate assets and returning dividends to shareholders. REITs can be publicly traded or can be private. REITs typically use large amounts of leverage in order to acquire large portfolios of properties. Most often these are commercial properties, such as office buildings and apartment complexes. REITs can offer investors relatively high yields and are can be a highly liquid method of real estate investing, provided they are publicly traded REITs. REITs exist in the form of equity, mortgage or a hybrid of the two.
If you ever wanted to invest in an apartment complex but didn’t have a million dollars, a REIT can be a viable alternative. A REIT is often diversified over several properties to decrease risk. If the REIT is profitable, you can expect a good share of the profits. To qualify as a REIT, a company must give away 90% of its taxable income, but most REITs give 100% to its shareholders.
Types of REITs
An equity REIT deals with income-producing real estate properties such as apartments, malls, and office buildings. You can receive dividends as well as capital gains if the property is sold. A mortgage REIT involves loaning money for mortgages or purchasing existing mortgages and mortgage-backed securities. Income is made through collecting interest payments. Hybrid REITs are a combination of equity REITs and mortgage REITs with investments in both owning property and granting loans.