"Investing in real estate without thinking about property transactions"
WHAT IS IT?
A real estate investment trust owns and operates real estate. A REIT is a good option for investors who would like to invest in real estate without the traditional real estate transaction.
REITs AND THE STOCK MARKET
REITs are publicly traded like a stock; it is possible to buy or sell them on the exchange market. They are known as solid investments in the stock market and they are known to have a regular income.
A big feature of a REIT is that the payout of a REIT should be 90% of its taxable profits in the form of dividends. In this way, REITs pay less in corporate tax and capital gains tax. A regular corporation would normally be taxed on its profits and then have the decision to distribute after-tax profits via dividends or not.
As said before, REITs are exchange-traded. In this type of real estate investment, it is not necessary to have a realtor and a title transfer to help you in your investment. Therefore, REITs are highly liquid, easy to buy and sell.
WHAT KIND OF REAL ESTATE?
In this kind of trusts different kind of real estate can be included, for instance offices, warehouses, hospitals, apartments, hotels, shopping centers, and commercial forests. Therefore, a REIT is, unlike other types of real estate investments, open for nonresidential investments which are normally not easy for individual investors to purchase.
TYPES OF REITs
REITs can be distinguished into two types: equity REITs and mortgage REITs. Equity REITS are trusts that own buildings. This is the more traditional version due to the nature of the trust. It is focused on the ownership in real estate. Whereas mortgage REITs are trusts which provide financing and work with mortgage-backed securities (MBS). Here the trust is focused on the income from mortgage financing of real estate.
REITs are essentially dividend-paying stocks. Therefore, the core holdings tend to be long-term and have cash-producing leases. The difference is based on the fact that REITs do not have the leverage associated with traditional rental real estate does not apply.