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Real Estate Investment Trust
It's fun to say, isn't it (pronounced "reet)?
A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges like a stock. (investopedia)
Because it is a trust that manages different types of real estate ventures (e.g. shopping malls, hospitals, apartment complexes, hotels, warehouses, timber land), it is a much more liquid type of investment than buying the actual properties. You don't have to wait around and hassle with selling properties. You just sell out of or buy into a REIT.
A REIT is like a mutual fund for real estate.
What's a "mutual fund?" A mutual fund is a professionally managed pool of funds designed to meet specific objectives, like generating dividends or growth. Dividends are good for investors who want to generate income; growth is good for investors who want to build their investment portfolios over time.
REITs are required by law to distribute at least 90 percent of their yearly taxable income (created by income producing real estate) to their shareholders, which makes them attractive to income investors (e.g. retirees). This amount is tax deductible on a corporate level (because a REIT is a corporate entity) and generally taxed at a personal level. Pretty cool, huh?
Because a REIT is a fund consisting of numerous property investments, it provides greater protection against a loss associated with any single real estate investment. Diversification manages risk by investing in a variety of different investments within a portfolio or a fund.
Anyone who owns a house has invested in real estate. But, the value of real estate fluctuates depending on interest rates and inflation, so there is always a risk. Selling shares in a REIT is a lot easier and faster than putting a property on the market in a down economy.
As with any investment decision, there is a lot of homework to do beforehand. With REITs, look at the management team (who is managing the fund); the diversity of the fund (is it heavily invested in one type of real estate venture?); and its earnings (look carefully at overall performance).
Read articles and pay attention to economic trends that may affect the value of real estate.
REITs are interesting animals if you're looking for an income generating fund to add to your investment portfolio. Personally, it's a little too early for me to jump on the REIT bandwagon. Things are starting to shape up for real estate, but there's an interest hike expected next month and more on the way in 2016, so I'm in a hold pattern when it comes to the real estate sector.
The REIT Way, Investopedia; 26 Nov 2003
Real Estate Investment Trust - REIT, Investopedia
Stay sharp & good luck!