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What are Real Estate Investment Trusts or REITs?
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Corporations that primarily own and usually operate real estate that generates revenue including hotels, commercial office buildings, rental homes, apartment complexes, etc. REITs may also finance real estate and many have their shares traded on major stock exchanges.
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What is required to be considered a REIT?
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To qualify as a REIT, a corporation must comply with the provisions of the Internal Revenue Code. According to the Tax Code, a REIT is required to:
- Pay annually at least 90 percent of its taxable income in the form of shareholder dividends.
- Be managed by a board of directors or trustees.
- Have a minimum of 100 shareholders.
- Invest at least 75 percent of its total assets in real estate assets.
- Have shares that are fully transferable.
- Have no more than 50 percent of its shares held by five or fewer individuals during the last half of the taxable year.
- Derive at least 75 percent of its gross income from rents, from real property or interest on mortgages financing real property.
- Have no more than 20 percent of its assets consist of stocks in taxable REIT subsidiaries.
- Be an entity that is taxable as a corporation.
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What was the reasoning behind the creation of REITs?
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In the 1960's, the United States Congress established REITs to give less established investors the opportunity to invest in large-scale, income producing real estate. Congress determined purchasing equity—as it is done with other industries—would be the best way to give average investors the chance to purchase large scale commercial real estate.
Access to these investment opportunities was limited to wealthy individuals and institutions before Congress became involved.
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Are there different types of REITs?
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Yes. Right now there are nearly 200 publicly traded REITS in the United States of America according to the National Association of Real Estate Investment Trusts ® with a combined market value of nearly $400 billion. Shares of the REITs are being traded on major stock exchanges daily, which make them different from traditional real estate.
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Are REITs considered to be good investments?
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Yes. REITs are considered to be a good investment. REITs are a great investment that diversifies your portfolio and reduces risk.
Their dividends are usually high and there is great potential for moderate, long-term appreciation. Compared to other investment options, over time the return on REIT stocks produce slightly less return than a high risk investment, but more than a low risk bond.
REIT dividends come from the rent paid by those who occupy the REIT’s properties, which is considered to be a fairly stable revenue stream. Annually REIT shareholders receive at least 90 percent of their taxable income, sometimes paid out monthly. Due to the fact rental rates tend to increase during periods of inflation, REIT dividends are usually protected from the negative effect of rising prices.Other benefits of REITs are:
- Liquidity: Shares of publicly traded REITs are easily converted into cash because they are traded on Wall Street.
- Professional Management: The managers of your REITs are trained and experienced real estate professionals.
- Oversight: Independent directors of the REIT, independent analysts, independent auditors, and the business and financial media watch over a publicly traded REIT’s financial reporting regularly. Such oversight provides investors with a comfortable level of protection because multiple sources are looking at the REIT’s financial condition.
- Disclosure Obligations: REITs whose securities are registered with the Securities and Exchange Commission are required to make regular disclosures, including quarterly as well as annual financial reports.
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How are REIT dividends handled for tax purposes?
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Dividend distributions for tax purposes are allocated to ordinary income, capital gains and return of capital, each of which may be taxed at a different rate.
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What types of people tend to invest in REITs?
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All types of investors find REITs to be an excellent investment to have in their portfolio. They include: new investors with no previous investment experience; intermediate investors with some experience; highly experienced investors; exchange traded funds; pension funds; endowments; foundations; insurance companies; and bank trust departments.
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What should I keep in mind when investing in a REIT?
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Corporations that demonstrate consistent earnings and dividend growth are rewarded by the market with higher price-earnings multiples. Keep these factors in mind when investing in REITs: The strength of their management team; a demonstrated ability to increase revenue consistently; and an effective operating structure.
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Are there any professional groups that advocate on behalf of REITs?
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Yes. The National Association of Real Estate Investment Trusts® was established as a trade association created to represent US REITs and publicly traded real estate companies. The National Association of Real Estate Investment Trusts® is comprised of companies, academics, and industry professionals. The organization’s primary purpose is to advocate for, and help promote, the industry and REITs.
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How can I invest in a REIT
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You can invest in one of the nearly 200 publicly traded REITs located on the major stock exchanges by purchasing shares. The highly specialized experts at REITBuyer.com can help you make your investment.
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What is a Real Estate Mutual Fund?
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A Real Estate Mutual Fund is a collection of real estate companies, Real Estate Investment Trusts (REITs), and companies that supply services to the real estate market. An investor purchases shares of the Real Estate Mutual Fund, which represents only a portion of the total worth of the fund.
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What are the benefits of investing in Real Estate Mutual Funds?
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Just as a traditional mutual fund, the primary benefits of investing in Real Estate Mutual Funds are professional management and diversification.
You do not have to attempt to determine the best way to invest your money, because a Real Estate Mutual Fund is managed by an investment professional that assists you in making sure your investment is profitable.
With diversification you own many different assets at one time. A Real Estate Mutual Fund can offer you instant diversification because each fund owns several different real estate companies, companies that supply services to the real estate market and REITs. When you purchase shares of the fund, you are buying pieces of all the assets held by the fund.
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Are there different types of Real Estate Mutual Funds?
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Yes. Real Estate Mutual Funds are divided into two categories. They are:
Closed-ended: These funds have a limited number of shares. If you are interested in purchasing part of the fund, you must purchase an existing share.
Open-ended: These funds have an unlimited number of shares. If you are interested in purchasing part of the fund, the fund will create a new share for you to buy.
You will find there are many more open-ended funds than there are close-end funds.
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Are there different investment levels for Real Estate Mutual Funds?
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Yes there are four different levels. They are:
- Large-Cap Real Estate Mutual Funds: Invest in companies with market values more than $8 billion.
- Mid-Cap Real Estate Mutual Funds: Invest in companies with market values in between $1 billion and $8 billion.
- Small-Cap Real Estate Mutual Funds: Invests in companies with market values below $1 billion.
- Micro-Cap Real Estate Mutual Funds: Invest in companies with market values below $250 million.
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Are Real Estate Mutual Funds considered to be good investments?
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Real Estate Mutual Funds can play an important role in a long term investment portfolio. Morningstar®, a well-respected investment research source, says these types of mutual funds have enjoyed tremendous growth over the last five years with an average annual return of nearly 11 percent as of September 2008.
Dividends paid on Real Estate Mutual Funds are typically influenced by economic factors such as interest rates and the matching of supply and demand for commercial office space.
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Are there any costs associated with investing in a Real Estate Mutual Fund?
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Yes. With every mutual fund you will incur some expenses. When purchasing a Real Estate Mutual Fund there are three expenses you should always identify: loads, redemption fees and operating expenses.
- Loads: Are fees charged either when you purchase a mutual fund (front-end load) or when you sell a mutual fund (back-end load). These loads are used to pay a commission to the agent who sold you the fund.
- Redemption Fees: Are stipulations indicating that if you sell your mutual fund before a specified date, you will be charged a fee.
- Operating Expenses:Are fees charged as a normal part of doing business for the fund. The management fees go to pay the fund manager for his expertise and time. The 12(b)-1 fee cover advertising and distribution expenses for the fund.
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What types of people tend to invest in Real Estate Mutual Funds?
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All types of investors find Real Estate Mutual Funds to be an excellent investment to have in their portfolio. They include: new investors with no previous investment experience; intermediate investors with some experience; as well as very experienced investors.
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Are Real Estate Mutual Funds bought and sold like stocks?
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No. Unlike stocks, Real Estate Mutual Funds can only be bought and sold at the end of the day. This is done because they are traded based on their net asset value (NAV). In order to figure out the NAV, the Real Estate Mutual Fund Company reviews all of the assets in the fund, determines their value and divides that number by the total number of outstanding shares in the fund. It is a complicated process therefore it is done once after the market closes.
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How can I invest in a Real Estate Mutual Fund?
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You can invest in a Real Estate Mutual Fund by using REITbuyer.com. It is easy. All you have to do is to join REITbuyer.com to begin investing.
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