For commercial real estate investments, there’s one key buzzword: the real estate investment trust, also known as a “REIT.” But what exactly is a REIT, and how can someone learn how to invest in a REIT?
Take a look at the points below for a few short explanations about the basics, including how to invest in REITs and why invest in REITs.
- A REIT is a company that owns or finances a real estate that produces some sort of income; REITs are key places where investors can put their money in order to provide regular streams of income and long-term appreciation. REITs generally pay out the majority of their taxable income to shareholders, and these shareholders in turn pay taxes on the dividends.
- When a REIT is publicly traded, there are many benefits for investors simply because the stock is publicly traded and tends to have high returns on investments. Many investors choose to invest in REITs because they provide a sort of income — which is really an important advantage, especially in an economy that isn’t quite stable — but also because it’s a great way to jump into the industry and get involved in stocks.
- On a bigger scale, REITs are very important because they contribute to the transparency and clarity of the real estate market; especially when a REIT is public, it has to answer to its shareholders whenever it makes a major decision or policy change. By turning capital into actual properties, REITs help the economy grow stronger and ultimately they benefit the larger community.
- REITs are fairly new to the stock and commercial real estate markets, and only became an official part of these industries in the U.S. during the 1960s. Despite being created not too long ago, the regulations for companies to become REITs are very strict in order to protect the investors as well as the companies themselves.