Real Estate Investment Trust
Real investment trust (REIT) is a firm where the income generates after mutual investment on properties. REIT dedicates its time, energy, and funding on a specific portion or part of real estate by identifying the project and then equally invest in the property and rent it out or sale. If the property is sold, the amount will equally be divided among unitholders, even if the value of the property increased. If it is on rent, the amount of rent is evenly distributed between the unitholders. REIT has different landholdings in its portfolio, which include hotels, apartments, health care space, buildings for office cell towers, and many more.
Types of REITs
Three basic types of REITS are:
Rental REITs
The establishment of rental REITS scheme is to make investments in residential or commercial property with a motive to generate the income of rent. RMC is the first who buy the entirely constructed property then rent it out in rental REITs.
Developmental REITs
The plan of developmental REITS where the property is obtained for the development of residential, commercial, and industrial real estate by REIT through establishment or renovation and afterward rented or sold. The profit from the property of sale or rent is then distributed among unit keepers.
Hybrid REITs
The combination of developmental REITS and rental by investing in mortgages and properties both is an investment strategy. However, it is not richly favorable as compared to genuine fair REITS, but it attracts the investment.
REITs Benefits
Economical
REITs investors have the benefit of enjoying the profit to a more substantial portion as compare to his personal capital, which is limited depending on his investment, but here are several investments collectively generate a good percentage.
Liquidity
Through real estate investment trust add the advantage of liquidity, turning the assets into cash. Real estate investments are easy to buy or sell in contradictory to shares. You can save your position by logging in to your brokerage account if the prices get high on REIT investment.
Flexibility
The entire procedure of buying and selling REIT is quite transparent and flexible. The investors of REIT have access to every information regarding the rates of REIT.
Variation
REITs having different property folders are spread out, reducing the risk of staying on single property or rental. For instance, you own a mart, and it closes due to some reason resulting in a decrease in value, but this would save you from standing alone in this risk once the investment is made in many properties through REITS. This will help you to recover the loss from different investments in REITs.
There are some disadvantages as well, which include:
- Question to market risk
- Low development or growth
- Fees transaction and high management
- Non-tax advantaged
Why REITS?
REITs are essential for the real estate investment on big property collectively to generate income and divide equally between the unitholders. It provides the investors to invest with a small amount and gain the profit in return. If the value of land increases by time, then the benefit will be distributed evenly.
