A REIT is
short for Real Estate Investment Trust. When you invest in a REIT your
money is going to get pooled with that of other investors to own shares in
commercial property. By pooling the money you are also pooling the risks
involved in this type of investing.
All REITs work with real estate, some with equity in
property while others will focus
on mortgages and yet
others will be a combination of both. If you want to make money with REITs
you should look into equity REITs as they have the most chance of making
you good money.
When you are investing in real
estate you have to get used to saying units instead of shares as this is
what they are known as in this market.
REITs are popular because they do
not pay income tax on the money that they earn, rather they have to be
qualified pass through entities. This means that they have to pass at
least 90 percent of their after tax income to their investors. It is the
investors who receive the dividends that will have to pay the taxes on
these dividends.
Most companies have their earnings
taxes a total of two times. First before it gets to the investors and then
once again once they have received the dividends. REITs however are able
to bypass the first taxes.
The best parts of REITs are as
follows:
You can invest in big commercial
buildings with a relatively small amount of money
Your risk is lessened by the fact
that your REITs could have interests in many different buildings spread
out all over the country or state or area
You can buy and sell your units on
the major stock exchanges
You will be able to get a current
income from a REIT
You can hedge against inflation when
in the real estate market
Okay, all of those reasons make
REITs sound pretty good but are they all they are cracked up to be? Well,
as it turns out there are some drawbacks to REITs. And some of them are as
follows:
When the economy goes down so will
your real estate investments and this can be dangerous in an unstable
market. They are also not as simple to analyze. If you are going to try to
find out the exact value of a REIT you will have a much harder time. They
are not reported in the same manner that other investments are so you will
have to really learn the ins and outs if you want to get accurate
information.
What you need to know
about a REIT
If you are beginning to get into the investment world
then you may have run across the term REIT. And chances are that you asked
yourself what a REIT was, well, a REIT is a company. But not just any
company, a REIT is a company that will purchase and then develop real
estate. They will also manage the real estate before they get to the
selling point to make
sure that it stays in tip top shape. It is a
REIT that allows for investors to own pieces of many different top
quality, expensive properties all at once. With a REIT you will be able to
have a portfolio of these real estate properties all making you a lot of
money.
A REIT is what is known as a pass
through entity. These types of entities are great because they are able to
provide the investors with huge return on their money without any taxation
issues higher up on the corporate level. This is only possible however if
some very specific guidelines and specifications are met. The whole point
of any pass through entity is to pass along good profits to the
investors.
There are rules governing a REIT
however. Such as the fact that a REIT has its business activities held
fast to rental incomes. This means that this is where they are making the
majority of the money. A REIT also allows for quite a bit of liquidity
compared to other investments of this value. The vast majority of real
estate investments are not easy to liquidate but REITs are, which give
them a whole other level of flexibility.
Participating in business with a
REIT is so simple and it allows for such liquidity because it is very
similar to buying shares in any other type of investment in the way that
it is traded. Most REITs are traded on the major exchanges, which makes
selling your shares and acquiring more as easy as
1-2-3.
