The real estate investment trust, or REIT, owns, operates, or finances real estate that generates revenue. REITs provide an investment option, similar to a mutual fund, that enables average Americans — not only Wall Street, banks, and hedge funds — to profit from valuable real estate; REITs offer access to dividend-based income and total returns and help communities grow, flourish, and rejuvenate. The majority of REITs are traded on major stock exchanges, and they provide investors with a variety of advantages.
REITs enable everyone to participate in real estate asset portfolios as they invest in other sectors – by purchasing individual business shares or through a mutual or exchange-traded fund (ETF). The investors of a REIT receive a portion of the revenue generated without having to purchase, manage, or finance property. About 150 million Americans own REITs through their pension plans, 401(k), and IRAs.
What assets are owned by REITs?
In the United States, REITs control more than $4.5 trillion in gross assets, with public REITs owning around $3 trillion in assets. The equity market capitalization of the U.S. shows that listed REITs exceed $1.4 trillion. There are approximately 535,000 properties and 15 million acres of forest owned by public REITs in the United States.
Offices, apartment complexes, warehouses, retail centers, medical facilities, data centers, cell towers, infrastructure, and hotels are among the property categories in which REITs invest. Some REITs maintain numerous property kinds in their portfolios, even though most concentrate on a single property type.
How do REITs generate revenue?
The majority of REITs follow a clear and easily understandable business strategy. By leasing space and collecting rent on its real estate, dividends are distributed to shareholders. At least 90% of REITs’ taxable income must be distributed to shareholders, with the vast majority paying out 100%. In turn, stockholders are responsible for paying income taxes on dividends.
mREITs (or mortgage REITs) do not directly hold real estate; rather, they finance real estate and generate revenue from the interest on these assets.
Why invest in real estate investment trusts?
In the past, REITs have generated competitive total returns based on high, consistent dividend income and long-term capital appreciation. In addition, their very low correlation with other assets makes them an effective portfolio diversifier that may help decrease overall portfolio risk and boost returns. These are the features of real estate investments based on REITs.
How did REITs fare historically?
For the majority of the time over the past 45 years, the track record of REITs’ consistent dividends, coupled with long-term capital appreciation through stock price increases, have provided investors with superior total return performance than the broader stock market and bonds.
Publicly traded REITs are professionally managed corporations whose primary objective is to maximize shareholder value. This entails arranging their buildings to attract tenants and generate rental revenue, managing their property portfolios, and purchasing and selling assets to develop value throughout long-term real estate cycles.
This drives the total return performance for REIT investors, who benefit from a stable yearly dividend distribution and the possibility of long-term capital gain. During the previous two decades, REIT’s total return performance has surpassed that of the S&P 500 Index and other key indexes, as well as the inflation rate.
What are the many kinds of REITs?
Equity REITs – The bulk of REITs are equity REITs that are publicly traded, and equity REITs own or operate real estate that generates revenue. Commonly, the market refers to equity REITs as just REITs.
mREITs – mREITs (or mortgage REITs) finance income-producing real estate by acquiring or originating mortgages and mortgage-backed securities and receiving interest income from these assets.
Public Non-listed REITs — Public, non-listed REITs (PNLRs) are registered with the SEC but not traded on national stock markets.
Private REITs – Private REITs are exempt from SEC registration and do not trade on national stock markets.
REIT Investing: How to Get Started
Individuals may purchase REIT shares listed on major stock exchanges in the same manner as other publicly traded stocks. Additionally, investors may acquire shares in a REIT mutual fund or exchange-traded fund (ETF).
A broker, investment advisor, or financial planner can assist an investor in analyzing their financial goals and recommending suitable REIT investments.
Additionally, investors can invest in public non-listed REITs, and private REITs.
How can a corporation become a REIT?
To qualify as a REIT, a corporation must:
- At least 75% of its total assets must be invested in real estate.
- 75% or more of its gross revenue must originate from rentals from real estate, interest on mortgages financing real estate, or real estate sales.
- Pay at least 90 percent of its annual taxable profits in dividends to shareholders.
- It must be a corporation-taxable entity.
- Governed by a board of directors or trustees.
- Have at least 100 stockholders.
- Have no more than fifty percent of its shares held by five persons.