
Real Estate Investment Trust (REIT)
A security that sells like a stock on the major exchanges and invests in real estate directly,
either through properties or mortgages.
REITs receive special tax considerations and typically offer investors high yields, as well
as a highly liquid method of investing in real estate.
Equity REITs: Equity REITs invest in and own properties (thus responsible for the equity or
value of their real estate assets). Their revenues come principally from their properties'
rents.
Mortgage REITs: Mortgage REITs deal in investment and ownership of property
mortgages. These REITs loan money for mortgages to owners of real estate, or purchase
existing mortgages or mortgage-backed securities. Their revenues are generated
primarily by the interest that they earn on the mortgage loans.
Hybrid REITs: Hybrid REITs combine the investment strategies of equity REITs and
mortgage REITs by investing in both properties and mortgages.
Individuals can invest in REITs either by purchasing their shares directly on an open
exchange or by investing in a mutual fund that specializes in public real estate. An
additional benefit to investing in REITs is the fact that many are accompanied by dividend
reinvestment plans (DRIPs). Among other things, REITs invest in shopping malls, office
buildings, apartments, warehouses and hotels. Some REITs will invest specifically in one
area of real estate - shopping malls, for example - or in one specific region, state or
country. Investing in REITs is a liquid, dividend-paying means of participating in the real
estate market.
National Association Of Real Estate Invesetment Trusts (NAREIT)
A trade association that represents U.S. Real Estate Investment Trusts (REITs) and publicly
traded real estate companies. In essence, NAREIT works as a lobbyist for both of these
groups when dealing with individuals who legislate the two respective industries.
NAREIT is made up of a community of industry professionals, academics and companies
that work together to promote the real estate industry and REITs. Through NAREIT,
individuals are able to access comprehensive industry data on the overall real estate industry
and the performance of member REITs.
Distribution Reinvestment
A process whereby the distribution from a limited partnership, real estate investment trust
(REIT) or other pooled investment is automatically reinvested into common units or shares in
a fund, often at a discount to the current market price. Investors can set up distribution
reinvestment plans with the partnership itself, or with a broker through which the units are
held.
Also known as a DRIP, but not to be confused with dividend reinvestment plans (also called
DRIPs), which are found in many large-cap stocks and mutual funds. Most distributions are
done quarterly, but some may occur on a monthly basis.
Investors who participate in these programs also generally have commissions and other
fees waived, making it an advantageous and affordable way to grow their investment.
Meanwhile, the financial managers have a stable way to grow assets with current investors.
REIT-REAL ESTATE INVESTMENT TRUST
A real estate investment trust (REIT) is a real estate company that offers common shares to the public. In this way, a REIT stock is similar to any other stock that
represents ownership in an operating business. But a REIT has two unique features: its primary business is managing groups of income-producing properties and it
must distribute most of its profits as dividends.
This is a great opportunity for real estate investors to invest without taking a mortgage. You can invest in different area: REIT-RESIDENTIAL
The REIT Status
To qualify as a REIT with the IRS, a real estate company must agree to pay out
in dividends at least 90% of its taxable profit (and fulfill additional but less
important requirements). By having REIT status, a company avoids corporate
income tax. A regular corporation makes a profit and pays taxes on the entire
profits, and then decides how to allocate its after-tax profits between dividends
and reinvestment; but a REIT simply distributes all or almost all of its profits
and gets to skip the taxation.
ADVANTAGES OF REITs
When you buy a share of a REIT, you are essentially buying a physical asset with a long
expected life span and potential for income through rent and property appreciation. This
contrasts common stocks where investors are buying the right to participate in the
profitability of the company through ownership. When purchasing a REIT, one is not
only taking a real stake in the ownership of property via increases and decreases in
value, but one is also participating in the income generated by the property. This
creates a bit of a safety net for investors as they will always have rights to the property
underlying the trust while enjoying the benefits of their income.
ADVANTAGES
Another advantage that this product provides to the average investor is the ability to
invest in real estate without the normally associated large capital and labor
requirements. Furthermore, as the funds of this trust are pooled together, a greater
amount of diversification is generated as the trust companies are able to buy numerous
properties and reduce the negative effects of problems with a single asset. Individual
investors trying to mimic a REIT would need to buy and maintain a large number of
investment properties, and this generally entails a substantial amount of time and
money in an investment that is not easily liquidated. When buying a REIT, the capital
investment is limited to the price of the unit, the amount of labor invested is constrained
to the amount of research needed to make the right investment, and the shares are
liquid on regular stock exchanges
ADVANTAGES
The final, and probably the most important, advantage that REITs provide is their
requirement to distribute nearly 90% of their yearly taxable income, created by income
producing real estate, to their shareholders. This amount is deductible on a corporate
level and generally taxed at the personal level. So, unlike with dividends, there is only
one level of taxation for the distributions paid to investors. This high rate of distribution
means that the holder of a REIT is greatly participating in the profitability of
management and property within the trust, unlike in common stock ownership where
the corporation and its board decide whether or not excess cash is distributed to the
shareholder
Conclusion
With so many different ways to invest your money, it's important that any decision you make is well informed. This applies to stocks, bonds, mutual funds, REITs, or any other
investment. Nevertheless, REITs have some interesting features that might make a good fit in your portfolio. Hopefully, this article has given you some insight into this unique
type of security and expanded your investment opportunities
DIVIDENDS
1. A distribution of a portion of a company's earnings, decided by the board of
directors, to a class of its shareholders. The dividend is most often quoted in
terms of the dollar amount each share receives (dividends per share). It can
also be quoted in terms of a percent of the current market price, referred to as
dividend yield.
2. Mandatory distributions of income and realized capital gains made to mutual
fund investors.
1. Dividends may be in the form of cash, stock or property. Most secure and
stable companies offer dividends to their stockholders. Their share prices
might not move much, but the dividend attempts to make up for this.
High-growth companies rarely offer dividends because all of their profits are
reinvested to help sustain higher-than-average growth.
2. Mutual funds pay out interest and dividend income received from their
portfolio holdings as dividends to fund shareholders. In addition, realized
capital gains from the portfolio's trading activities are generally paid out (capital
gains distribution) as a year-end dividend

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REITs= REAL ESTATE INVESTMENT TRUST
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