REIT, or real estate investment trusts, are entities which invest in real estate or related assets. Examples represent office buildings, shopping centers, mortgages secured by real estates and hotels. In principle, there are three REITs types:
- Equity REITs are considered the most common type of all. They own or invest in real estates and collect rent to accrue profit for their investors.
- Mortgage real estate investment trusts stand for investors in financial instruments which are considered secure because of the mortgages on real estates. In addition, they lend money to developers or owners.
- Hybrid REITs represent a combination between mortgages and equity REITs.
The Internal Revenue Code lists the conditions that should be met by a company in order to qualify as REIT. For example each year, 90% of the company’s taxable income must be paid to the shareholders. In addition, 75% of the total assets must be invested in real estates and 75% or more of the gross income must come from mortgages on real property or from investments.
Many REITs trade at the over-the-counter market or the national exchanges. Reports must be filed to the SEC when RETS is publicly traded. They are typically prepared on a quarterly or annual basis.
The most useful REITs statistics are the following: the Adjusted Funds from Operations (AFFO), Net Asset Value (NAV), and Cash Available for Distribution (CAD). Recently, REITs face challenges from the slowing economy and the world’s financial crisis which lowers the value of share values with up to 40 to 70 percents.
Investment in a mutual fund or purchase of shares directly is the typical manner in which individuals invest in REITs. As an additional benefit from the investment in REITs, many of them offer plans for dividend reinvestment. If clients are looking for dividend payments and liquid means for participation in the real estate market, they should invest in REITs.
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