WICHITA, KS (wichitaksrealty.news) What exactly is a REIT? Let’s go back to the basics to explain this one and include a little history. Real Estate Investment Trusts, or REIT’s for short, are investment vehicles that congress allowed in 1960 with the purpose to provide everyday citizens the ability to invest in pools of real estate investments with a common goal. Much like a mutual fund, by pooling resources individual investors where able to participate in the purchase of shopping malls, apartment complexes, rental storage units and many other real estate types.
Typically, a REIT is one of two types. The first is an equity REIT. This type purchases income producing properties. The second is a financing REIT. This type invests through purchasing mortgages and other financing vehicles for the purchase of properties.
To break them down further, REIT’s usually stick with a specific type of asset like apartments or shopping malls as examples. They focus on the industry they know and diversify vertically through owning multiple properties. They can also trade on the stock exchanges but are not required to. Per NAREIT, there are more than 200 REIT’s currently registered in the U.S. with the SEC trading primarily on the NYSE. These Real Estate Investment Trusts have an estimated overall equity market capitalization of almost $1 trillion. And the IRS says there are over 1100 REIT’s registered with them. One main difference in a listed and unlisted REIT is liquidity. A REIT listed on the NYSE can be sold like a stock which makes it highly liquid. In an unlisted REIT, the charter sets the ability to buy and sell which can make them less liquid.
A REIT is also a pass through entity when it has to do with taxes. They can return to investors interest, principal and capital gains all related to the activity within the trust.
There is much more to them then this description. This is intended to be a general overview only.
If you are looking into adding real estate to your investment portfolio, as always, proper knowledgeable assistance through a licensed agent or group is recommended.