Real Estate Investment Trust (REIT)

REIT refers to Real Estate Investment Trust. REITs are a specialized form of investment company that, similar to mutual funds, make it possible for ordinary real estate investors to take part in a diverse portfolio of investments that they might never achieve otherwise.

These companies may possibly own manage, and/or lease commercial real estate properties. They might be also purchase real estate related securities such as mortgage-backed bonds.

Mutual Fund for Real Estate

As previously indicated, the concept is alike to a mutual fund. Many investors can pool their assets to own a partaking in a number of real estate investments. With many pieces of real estate costing millions even hundreds of millions of dollars; most ordinary real estate investors cannot own them by themselves. Still, unlike a stock or bond, mutual fund Real Estate Investment Trust are operating companies. They normally do more than just own the properties. They regularly manage the real estate properties they own. This means the Real Estate Investment Trust finds the tenants, receives the rents, pays the bills and handles all other matters connected with owning real estate. Mutual funds, on the other hand, do not handle the companies they are invested in.

Tax Exemptions and High Dividends

Real Estate Investment Trust have an import tax exemption. They do not require paying federal or most state income taxes. To get this exemption the law needs that a Real Estate Investment Trust payout 90% of its earnings in the means of dividends to its shareholders. These dividends are taxable to the individual real estate investor. This special tax treatment allows shareholders in Real Estate Investment Trust to avoid the double taxation related with normal corporations.

High payout leads directly to the most significant investment characteristic of Real Estate Investment Trust. They normally have yields that are well above standard and are often excellent investments for real estate investor seeking high income.

For instance, publicly traded Real Estate Investment Trust at present have an average yield of nearly 6.0%, while the average yield for the stocks in the S&P 500 Index is about 1.2%.

With common interest rates hovering near 40-year lows, investments with high yields are hard to find. For some investors Real Estate Investment Trust may be the answer. One more advantage is that Real Estate Investment Trust take pleasure in the high liquidity of publicly traded stocks. Direct investments in real estate are not liquid. You cannot sell that regional mall that you own at a moment’s notice.