A Real Estate Investment Trust (REIT) can be defined as company that allows investors to invest in the company through the usual securities and stock exchange in order to own several real estate properties . In general, the company gives its shareholders a chance to own several real estate properties without essentially having to out and develop or purchase the property. These companies have tax designation according to the United States Securities and Exchange Commission. According to the same commission, REIT pay about 90% of all its revenues to investors will the reminder being channeled to taxes and company administrative costs . Commercial properties that are mainly synonymous with REIT may include but not limited to hotels, high end apartments, office blocks, warehouses and shopping malls.
Most REITs have been found to invest in specialized real estate properties such as offices, rental apartments and industrial units among others. According to Rothschild REITs also differentiate themselves from other real estate investment companies in several ways. One of the main differences is that once the company has purchased and developed property, it cannot resell the property . Unlike other normal real estate firms that may resell property once it’s fully developed. Other factors that determine whether a company can be classified as REIT include the fact that 90% of its revenue is shared among the shareholder in form of dividends. Additionally the REIT must be run by a board of trustees. The company should also have about 75% of its assets as real estate with a minimum of 100 shareholders .
How and Where to invest in REITs
For an investor to invest in any of these companies, an individual is advised to first seek financial counsel from a professional investment consultant in order to understand the intricacies of investment. Undertaking a thorough research on which to invest is also very important. Most of the audited financial statements and reports are available at the Securities Exchange Commission website. An individual can invest in listed REIT by simply purchasing the shares through a stock broker. The common process that investor go through is purchasing shares in other publicity listed companies is equally applied here. The investor through the broker may purchase debt securities, common stock or preferred stock.
There are also other ways of investing in a REIT that is not publicly traded. One of the ways of doing this is by engaging a non-traded stock broker who has been authorized to deal in the shares. In this case, the broker performs the exchange of the shares according to the provision of the REIT. An investor can also look own shares of a mutual fund REIT. A Mutual fund REIT can either be an actively managed fund or an index fund. To understand all the implication and risk of participating in the trading of such shares, investor should make an effort to seek advice before proceeding to invest in any REIT.
Advantages and Disadvantages
One of the greatest advantages of investing in a REIT is that fact that over 90% of all income is distributed among the shareholders. This implies that investors are assured to returns on investment on an annual basis. A second advantage is that REITs are registered under Securities and Exchange Commission, thus subject to regulation and other minimum disclosures. For this reason, investors are assured that their investment is secured through these regulations.
Disadvantage
Just like any other investment, investing in REITs is, in a sense, investing in the real estate industry, which is subject several fluctuation based on the interest rate. The real estate industry was one of the most affected industries in the recent international global crisis that began in the United States. Today the industry has not fully recovered from the credit crunch crisis.
There are several REITs that have since reported successful business. Some of these include Boston properties and S.L Green. In publications by the Newman Real Estate Institute in New York, these firms have reported great progress and expansionist attributes . One of the REITs that have failed is the Japanese REIT that was listed in the New York stoke exchange.
Works Cited
Dittman, David. "REIT Investing, Canadian Style. 2010. 30 July 2012
Rothschild, Mark. Spotlight on North America/Canada. Dec 2005. 30 July 2012
United States Securities and Exchange Commission. Real Estate Investment Trusts (REITs). 30 July 2012
