What is a REIT?
A REIT, or Real Estate Investment Trust, is a company that owns or finances income-producing real estate. Modeled after mutual funds, REITs provide investors of all types regular income streams, diversification and long-term capital appreciation. REITs typically pay out all of their taxable income as dividends to shareholders. In turn, shareholders pay the income taxes on those dividends. REITs allow anyone to invest in portfolios of large-scale properties the same way they invest in other industries – through the purchase of stock.
REIT Financial Benefits
Publicly traded REITs offer investors the benefits of commercial real estate investment along with the advantages of investing in a publicly traded stock. The special investment characteristics of income-producing real estate provide REIT investors with competitive long-term rates of return that complement the returns from other stocks and from bonds.
Economic Impact of REITS
REITs support the U.S. economy by effectively and efficiently channeling capital into real estate, bringing greater transparency to real estate investment, creating liquidity in the real estate sector of the economy and contributing to the nation's tax base.
Guide to Equity REITs
Equity REITs are real estate companies that acquire commercial properties – such as office buildings, shopping centers and apartment buildings – and lease the space in the structures to tenants, who pay rent.
Guide to Mortgage REITs
Mortgage REITs provide financing for real estate by purchasing or originating mortgages and mortgage-backed securities and earning income from the interest on these investments. Mortgage REITs invest in residential and commercial mortgages, as well as residential mortgage-backed securities and commercial mortgage-backed securities.
Guide to Public Non-Listed REITs (PNLRs)
Many REITs (whether equity or mortgage) are registered with the Securities and Exchange Commission and are publicly traded on a national stock exchange. These are known as stock exchange-listed REITs. In addition, there are REITs that are registered with the SEC, but do not trade on major securities exchanges. These are known as publicly registered, non-exchange traded REITs, or simply public non-listed REITs (PNLRs).
Guide to Private REITs
Private REITs, sometimes referred to as private-placement REITs, are neither traded on a national stock exchange nor registered with the SEC. As a result, private REITs are not subject to the same disclosure requirements as stock exchange-listed or public non-listed REITs.
Global Real Estate Investment
While the U.S. remains the largest and most efficient listed real estate market, the listed real estate market is increasingly becoming global. The growth is being driven, importantly, by the appeal of REITs.
Forming a Real Estate Investment Trust
In order to qualify as a REIT, an entity must meet a number of organizational, operational, distribution, and compliance requirements. If the REIT satisfies these requirements, it will be entitled to deduct any dividends paid from its taxable income.
Frequently Asked Questions About REITs
Real Estate Investment Trusts, or REITs, are a practical way for all investors to invest in large-scale, income-producing, professionally managed companies that own commercial real estate. As an investment, REITs historically provide portfolio diversification plus strong and reliable dividend income. Publicly traded REITs have demonstrated superior long-term risk-adjusted returns, as well as the liquidity and transparency of public capital markets.
Glossary of REIT Terms
Every industry has its own verbiage that insiders use when talking about the business. These terms can be unfamiliar or hard to grasp for those newer to the business. Here are some terms commonly used regarding REITs or real estate investment and a definition to help you better understand the concepts.
History of REITs
September 14, 2010 marked the beginning of the 50th anniversary year of celebration of the U.S. REIT industry. Fifty years prior, President Dwight D. Eisenhower signed legislation that created a new approach to income-producing real estate investment – a manner in which the best attributes of real estate and stock-based investment are combined.