What Is a REIT?
A REIT is also known as Real Estate Investment Trust. It is a different company that allows investors or people to invest in the real estate business. This is another type of business in which people invest their money and get a handsome amount of profit.
All the real estate investment trust companies are having different styles of working. Some work in a pool of investments and some simply buy the real estate property and give that property on the rent and some develop the property and use that property for commercial purposes. Real estate property is just like a mutual fund investment. Where the number of people invests in the pool of the investment and some professional people think how to invest the money so that people will get profit. All this investment work is done by it because it is not possible for a normal person to go outside and buy the thing.
Key factors of REIT
- A REIT is like a mutual fund for a real estate business.
- It is a good option for those who want to invest their money in the real estate business but they don’t have any experience buying the property. So it is a good option for them.
- If you plan to purchase property with the help of a investment trust, then you need to visit an SEC-registered broker or financial adviser for professional advice.
The Requirement to become REIT
A company can’t become a REIT and simply buy some real estate property and call itself a real estate investment trust. Some specific requirements that must be qualified by the company to become a real estate investment trust :
- REIT companies must invest some of the money in the real estate business. In other words, more than 75% of a real estate investment trust company’s income will be like rental income, mortgage assets, or other real estate income or fees sources.
- It companies must follow the corporate structure and also have at least 100 shareholders. Because of these shareholders, its companies are able to start real estate businesses in partnership and later convert to REIT.
- Not more than 50% share is distributed to 5 or fewer people. If this happens then-owner rights are given to that person who is having maximum shares. The only owner will have maximum shares.
- REIT companies are required to pay 90% of their taxable income.
Types of REIT
There are three types of REIT.
Equity REIT is where they have only property for the primary business. For example, a shopping mall and housing REIT.
Mortgage real estate investment trust, is where all the investment is done on mortgages, backed securities, and other mortgage-related property. These companies borrow money from the bank or the financiers at low-interest rates and use this money to purchase mortgages, and later they will pay higher rates of interest.
In the real estate investment companies, companies can invest in both types of REIT. Equity and Mortgage REITs.
What type of investment a REIT can do?
Following types of investment a REIT can do :
- Mortgage –Mortgage investments are only done in mortgages, mortgage-backed securities, as well as other mortgage-related assets.
- Residential — Residential invests is only done on buying residential properties
- Office — Office invests in buying a variety of office properties. Office real estate investment companies must have to invest in buying top-tier urban high-rise offices.
- Industrial — Industrial is also known as logistics real estate companies trust. They invest in buying properties like distribution centers, factories, and warehouses.
- Healthcare — There are several categories that come under the healthcare REIT. Healthcare real estate categories such as hospitals, medical offices, senior housing, skilled nursing, life science, wellness centers, and more.
- Self-storage — Self-storage investment is done on buying properties that are on the rental storage units for individuals and corporations.
- Retail — There are three types of retail REIT — malls, shopping centers, and net lease.
- Infrastructure — These companies invest in properties like communications towers, fiber optic networks, pipelines, and other infrastructure assets that need real estate to operate.
- Timberland — Timberland only invests in owning forest land and they can make money by selling the wood their lands produce, as well as its related products.
- Hospitality — Hospitality can only invest in buying hotels, but they get revenue from additional hospitality-related sources as well.
- Data-center — Data centers are designed to provide secure and safe space for companies to have servers and other computing equipment.
Advantages of Investing in REITs
- REIT is not a direct property investment.
- Its much easier to invest in real estate with the help of REIT companies.
- Its companies are always at a lower risk side.
- Its companies are regulated or affiliated by SEBI, so there are fewer chances of fraud
- It has to disclose the capital portfolio annually and semi-annually.