Rei ts can provide a steady stream of income(finished)
REITs Can Provide a SteadyStream of Income
Real estate investors oftenlook for alternatives to thetraditional brick-and-mortarproperty nest egg. A realestate investment trust (REIT)is one solution. REITs are organized to minimizerisk and maximize the potential for profit. A REITis a form of property ownership that poolsmoney from many investors to acquire varioustypes of real estate.
By pooling the resources of many investors, REITscreate a product that can be easily liquidated on theopen market. They also offerentry-level investors theopportunity to invest inlarger-scale, income-producingreal estate that would otherwisebe out of reach. The concept of the REIThas been around for some 50 years. SeveralREITs are publicly traded on U.S. stock exchanges.
Initially designed to provide small investors withthe means to invest in the ownership andfinancing of large projects, REITs have branchedinto categories and subcategories. Equity REITs,mortgage REITs and hybrid REITs exist, with themajority of real estate investment trusts beingequity REITs.
The subcategories of REITs are classified by thetypes of properties that are acquired.
For example, an equity REITmay focus on such things asshopping centers and officebuildings, while anotherfocuses on warehousesand industrial opportunities.REITs offer investors the opportunity to leap intothe profitable commercial real estate sector thatwould normally be out of their financial reach.
By pooling the resources of a wide range ofinvestors, REITs offer a way to reduce risk andincrease the rewards associated with investingin real estate. As an added benefit, shareholderscan easily sell their interestin the REIT at any time. Asa publicly traded company,shares can be sold on theopen market and are subjectto the frequent fluctuationsin price that affect any stock.
On the other hand, the traditional resalemethod of property liquidation is much moredifficult. Sales can be hindered by marketconditions, motivation and cost to sell. Thereare several requirements for corporations toqualify as a REIT:
• They must be managed by a board of trustees.• They must offer transferable shares.• They must have a minimum of 100 shareholders.
• They must pay dividends of at least 90% of theREIT’s taxable income.• At least 75% of all investments must be in realestate.• 75% of all income must come from rents ormortgage interest.
REITs offer entry-level as well as established realestate investors a way to take part in a highlyprofitable, income-producing real estateinvestment.