What are Real Estate Investment Trusts (REIT)?

by Investing School on March 7, 2011

The term Real Estate Investment Trusts (or REIT) makes reference to a security that is sold on the exchanges and invests in real estate properties or mortgages directly. REITs are subject to specific tax considerations and can bring high yields to investors. They are also known as a quite liquid option for investment in the real estate market. There are a few different types of REITs.

Mortgage REITs focus on investment and ownership of mortgages. This kind of REIT will loan money for real estate mortgages, or else, buy existing mortgages or mortgage-backed securities. In this case, revenues are created mainly from the interest earned on mortgage loans.

Equity REITs invest in and own properties themselves, meaning that the revenues will come mainly from the rent of the REIT’s properties.

Hybrid REITs blend the investment strategies of both Equity and Mortgage REITs, usually through investment in properties and mortgages together.

It is possible to invest in REITs by buying the shares directly on an exchange, or else through a mutual fund focusing on public real estate investments. A significant number of REITs include dividend reinvestment plans (DRIPs). REITs may invest in such properties as office buildings, apartment buildings, shopping malls, hotels/resorts, and even warehouse properties. REITs may target their investments to a specific kind of real estate, or focus on a particular geographical region of a state or country. REITs can offer a more financially liquid method for involvement in real estate investing.

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