What is a REIT?
A REIT is a company which primarily owns and manages real estate properties. Set up as a corporation, a REIT then sells investment shares which may be purchased by investors. REITs allow ordinary investors the opportunity to enjoy the benefits of owning large commercial properties - an opportunity usually available primarily to wealthy and institutional investors. Congress created REITs in 1960 to allow the average investor the opportunity to own income-generating real estate.
The properties owned by a REIT create a rental income that may be passed on to investors as distributions. REITs are required by law to pass at least 90 percent of taxable income to stockholders. REITs also often create tax advantages for stockholders.
Investors can also benefits when a REIT's properties grow in value. Led by real estate professionals, REITs may identify, purchase, and operate properties in such a way that builds income and growth for investors over time.
Type of REITs
Traded REITs are bought and sold just like traditional exchange-traded stocks. While they can provide many of the benefits associated with direct real estate investing, traded REITs are subject to the same sort of market fluctuations as exchange-traded stocks.
Non-traded REITs are not publicly traded on a national stock-exchange. Some investors view non-traded REIT shares as more stable than exchange traded REITs and stocks in general. Non-traded REITs, however, do not offer the liquidity of publicly traded REITs. While lacking liquidity, an investment in direct real estate has historically increased overall return while lowering portfolio risk.
Each REIT is unique. Different REITs feature different investment objectives and may vary in the types of properties they focus on - from office buildings to healthcare facilities, warehouses to apartments, shopping center to retail stores.
The direct or indirect purchase of real property involves significant risks. Investors should consult their own tax advisors and legal counsel. Always remember that each property is unique and past performance is no guarantee of future results. REITs are highly illiquid investments. Investors should consult the prospectus for additional information before purchasing any REIT shares.