What Is a Real Estate Investment Trust

What Is a Real Estate Investment Trust

What is a real estate investment trust, and why are these trusts considered so lucrative? This is a question that has crossed the minds of most beginning real estate investors at some point in their careers. Real estate investment trusts (also known as REITs) have been around since the 1960s, and they have since transformed the real estate market in the United States. Understanding how these trusts operate and why joining or starting or doing business with a trust might be a lucrative option should be one of the main topics of research most real estate professionals should consider quite early on.

Defining a Real Estate Investment Trust

So, what is a real estate investment trust anyway? The term, REIT, refers to a company that owns, handles, sells and buys income-producing real estate properties. These companies typically have a lot of money at their disposal – enough to not only own, operate and buy numerous office buildings, warehouses and apartments, but also to engage in the financing market. These trusts usually have to pay up to 90% or more of their taxable income in the form of shares and dividends. As a result, REITs are some of the largest and most significant income vehicles in the entire country.

A Short History of Real Estate Investment Trusts

The Public Law 86-779 was signed by President Dwight D. Eisenhower in 1960. Nicknamed the Cigar Excise Tax Extension of 1960, this law has led to the development of the first trusts in the early ‘60s and to a completely redefined market by the beginning of the 1970s. When asking, “what is a real estate investment trust,” investors will point out that this law was the first to allow anyone with the right resources to invest in diversified portfolios of income-producing real estate properties ranging throughout the entire spectrum of commercial and residential properties. Later on, trusts have also spread out on a global level, the global index of last year including 477 listed real estate companies and being estimated at a value of about $2 trillion.

REITs and Their Practical Benefits

Now, the real question is, what is a real estate investment trust and what are its practical advantages? Even though starting a trust would require sizable investments, the advantages of investing in REITs can be extremely lucrative, even if you’re just starting out. REITs are transparent, being listed and operating on the same rules as most publicly listed securities. Another benefit is that the shares can be sold or bought quite easily, facilitating liquidity. Performance, diversification and the establishment of dividends for stability will also represent clear advantages that any real estate professional will point out right away when speaking about what makes REITs so special.

The Requisites for Managing a Trust

What is a real estate investment trust and what does managing one entail? While REITs allow both small and large investors to profit, there are a few requirements to consider. REITs should have at least 100 shareholders, and none of them should hold more than 50% of the shares. Moreover, it’s important that at least 75% of the REIT’s asset should be invested in real estate at any given time and that it should be managed by a Board of Trustees or a Board of Directors.

The Three Types of REITs

Now, the question is not only, what is a real estate investment trust all about, but also, what are the different types of trusts one can consider? There are three different varieties: equity REITs designed strictly for properties, mortgage REITs, which generate their income from mortgages and lending money to real estate investors, and hybrid REITs, which are a blend between the two.

What Is the Best Approach to Handling REITs?

Whether or not a real estate investor has enough to invest in a REIT depends on what their goals might be. If you don’t have a lot of money at your disposal, you can still invest in shares and dividends, so the question of, “what is a real estate investment trust” is not simply one that is restricted to the wealthiest of investors. However, keep in mind that growth can be slow, especially if your capital is limited. Also, higher investment risks and tax payments can make some investors uneasy. The best approach to handling and investing in a real estate investment trust is to diversify your portfolio and ensure that the trust you choose will be on board with your plans and long term aspirations.

Are Investment Trusts Helpful for You?

An investment trust is generally a profitable option when compared to other investment opportunities. However, it’s also a long term opportunity that has to be regarded as such. Joining or starting an investment trust in the US real estate industry can bring enormous profits, but you have to be ready to work for them and have the patience and strategic vision to guide your investments in the long run. Keeping these details in mind, it’s easy to see a clearer answer to the question, “what is a real estate investment trust, and how can I profit from it?”