What Are Real Estate Investment Trusts? Here’s A Quick Video Explaining What REIT’s Are…
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Hi, this is Frank Chen with REIClub.com, the only site you need as a real estate investor. Today I’ve got a quick video explaining what real estate investment trusts are….
A REIT, or Real Estate Investment Trust, is simply a company that owns and/or manages and/or finances income-producing real estate, and provides investors the opportunity to diversify their income streams, and gain long-term capital appreciation.
Like Mutual Funds, REITs allow anyone to invest in portfolios of large-scale properties the same way they invest in other industries, through the purchase of stock.
2 Types of REITs – Equity REITs and Mortgage REITs
Equity: generate income through the collection of rent on, and from sales of, the properties
Mortgage: invest in mortgages or mortgage securities tied to commercial and/or residential properties – share in the interests
REITs typically pay out 90 percent of their taxable income as dividends to shareholders.
In turn, shareholders pay the income taxes on those dividends.
– unlike other forms of real estate investing – You can invest in REITs using mutual funds
– The minimums are lower than most down payments
– You can diversify either through the purchase of multiple REITs or by investing in a mutual fund that invests in REITs.
– Liquidity – Instead of having to sell a house, you’re dealing with shares
– Stock exchange-listed REIT shares can be easily bought and sold.
– You can own real estate without the costs and hassles associated with real estate investing.
– You own physical assets with a value that’s historically known to appreciate over the long-term
– REITs have to pay out 90% of their profits as dividends to shareholders – more profits to you.
– Since only 10% of income goes back into the REIT – slower growth
Increased property taxes hurt revenues
– Falling occupancy rates and increasing vacancies hurt revenues.
– Share prices can drop when property values fall – no profits for the REIT means no paid dividends
– Rising interest rates hurt profitability.
– REIT’s – Pass Through Taxes to Investors – Pay taxes on your dividends – Some dividends are considered ordinary income, and taxed as so.
– Lack of control – no say in operational decisions
In conclusion, REITs, are a good investment source for people who may not have the time, but want the returns Real Estate has to offer.
Again, you’re taking ownership
Is there risk? Of course, but it is minimized due to the it’s liquidity, and your ability to track progress like a mutual fund.
You only lose money when you sell shares at a loss. If you hold onto the shares for 25 years, the value will increase and decrease, but ultimately as the stock market has proven over time, it’s known to bounce back.
Prior to investing in a REIT, we recommend consulting with a tax advisor to determine the net effect on your tax bill.
Again, this is Frank Chen with REIClub.com. Please take the time to leave your comments for this video below and please subscribe to our YouTube channel so you’ll be automatically notified when we upload more quick video tips for you. Take care and good investing.