The Basics of REITs
Today’s short blog is going to look at REITs, what they are and why they are considered an excellent investment and excellent addition to any portfolio.
The definition of a REIT is a security on any of the major stock exchanges that sells like a stock and invest directly in real estate through either properties or mortgages. REITs are highly liquid method to invest in real estate, they receive special tax considerations and, in most cases, offer high yields to investors.
There are a number of different types of REITs available, including Equity REITs that invest in and own properties. The name comes from the fact that they are responsible for the equity (value) of the real estate assets they hold. The majority revenues from REITs come from the rents on those properties.
A Mortgage REIT is when you have an investment in and ownership of property mortgages. These start when an REIT loans money to real estate owners for mortgages, or they purchase either existing mortgages or securities that are backed by mortgages. The interest that they earn on their mortgage loans is principally where the revenues are generated with a mortgage REIT.
Lastly there are Hybrid REITs. These combine the strategies of both Equity and Mortgage REITs because they invest in both mortgages and properties.
If you wish to invest in REITs there are a number of ways to do so. You can either purchase shares directly on open exchange or, if you wish to invest in a mutual fund, find one that specializes in public real estate.
Many REITs also come with dividend reinvestment plans or DRIPs, which is definitely an additional benefit. Some of the properties that REITs invest in are warehouses, hotels, office buildings, shopping malls and apartment buildings. You can also find some that specialize in a specific area, for example office buildings, or a specific area of either a state or country.
In short, if you wish to get into real estate as an investment, and have a liquid, dividend paying asset, REITs are an excellent choice.
Filed under: Investing
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