A real estate investment trust (REIT) is a business that owns, develops, or finances revenue assets.
They, which are comparable to collaborative funds, pool the capital of a variety of diverse investors. Retail investors can now earn from property investments without owning, operating, or investing directly in the properties.
How they work
Assets in a REIT portfolio include residential properties, server farms, health clinics, hotels, transportation (optic cable, cellphone towers, and oil and gas pipelines), office blocks, commercial areas, self-storage, forests, and factories.
REITs are property investment trusts that specialize in a particular sector of the property sector. Specialization and diversification REITs, on the contrary, can have a diverse range of investments, such as one that owns both industrial and commercial properties.
Investors can find several on the primary market. Traders can transact them at any moment throughout the business day, much like equities. Liquid assets are REITs that are often exchanged in huge numbers.
To qualify as a REIT, a business primarily invests in real estate. This can be in the form of short-term rental leases, industrial properties or commercial properties. The majority of their income would originate from rental income, interests on loans or property investment sales.
Generally, they would have a management board of trustees to govern them.
Pros and Cons of REITs
REITs have many advantages such as accountability. Unlike normal property investments, most stock exchanges regulate them and thus they are subject to accounting scrutiny. They offer consistent cash flow via a dividend.
REITs are usually built up of a portfolio of many different properties. Due to this, many investors believe they offer diversity.
On the flip side, most countries tax dividends similar to income. There is a danger of losing money in the market with REITs since rental income can stagnate during periods of recessions etc. One major disadvantage of them is the administrative charges and high trading fees.
In conclusion, any investor should consider REITs as a wise asset to invest in. Above all, many investors have made a lot of money from them. To find more investment assets to invest in do read our article on types of investments.