Real Estate Investment Trust (REIT): How They Work and How to Invest

Real Estate Investing

Real Estate Investment Trusts (REITs) are becoming a popular investment option in the market. These investment companies own large real estate properties and lease them to tenants to generate revenue. For middle and poor-class investors, it’s a fantastic way to invest in real estate without physically owning any property. In this blog, we will dive deep into REITs, what they are, how they work and how you can invest in them.

What is a Real Estate Investment Trust (REIT)?

REIT or Real Estate Investment Trust, is a company that owns, manages, and finances income-generating real estate properties. This category of companies is similar to mutual funds that pool money from common investors to invest in different assets.
REITs own and manage various property types. These include apartments, office buildings, shopping centers, and healthcare facilities. The income generated by the REIT is shared among the investors through dividends.

Types of REITs

There are two primary types of REITs: Equity REITs and Mortgage REITs. Equity REITs own and manage income-generating properties such as apartments, office buildings, and shopping centers. On the other hand, Mortgage REITs earn income from mortgage financing by lending money to property owners.

How do REITs work?

As a company, REITs’ success depends on the income generated by the real estate properties they own and manage. The income earned is distributed among the investors in the form of dividends. To qualify as a REIT by law, the company must distribute at least 90% of its taxable income to shareholders in the form of dividends. The investors receive these dividends in proportion to their investment in the company.

Advantages of Investing in REITs

REITs provide investors with a way to invest in real estate without physically owning properties. This makes real estate investing accessible to the middle and poor-class investors. REITs also provide diversification, liquidity and offer the possibility of higher returns when compared to traditional bonds and stocks.

How to invest in REITs?

Investing in REITs is similar to investing in stocks. You can buy them directly through brokerage firms or through mutual funds and exchange-traded funds (ETFs). You can select U.S. exchange-listed REITs or global REITs. It’s essential to do thorough research before investing in any REIT to ensure it aligns with your investment goals.

Conclusion

In conclusion, REITs provide an excellent way for middle-class and poor-class investors to invest in real estate. REITs offer the benefits of real estate investing without the hurdles of physically owning a property. We believe that investing in REITs, along with proper research and diversification, could be a great way to achieve your long-term wealth goals.