What are REITs?

A REIT is a company that owns and operates income generating real estate. This can include office buildings, shopping malls, apartment complexes, hotels, and even timberlands. REITs allow investors to invest in real estate without having to own, manage, or finance the properties themselves.

History of REITs

REITs were created by the U.S. Congress in 1960 to provide small investors with an opportunity to invest in large-scale, income-producing real estate properties. Today they are available in many countries around the world and offer investors exposure to a wide range of real estate assets, including residential, commercial, industrial, and retail properties.

How do REITs work?

REITs work by collecting rental income from their properties and distributing a portion of that income to their shareholders as dividends. The remaining income is used to pay for operating expenses, pay down debt, and reinvest back into the properties. By law, REITs are required to distribute at least 90% of their taxable income to shareholders in the form of dividends.

Types of REITs

Equity REITs

Equity REITs are the most common type of REITs. These REITs own and operate income-generating real estate properties such as office buildings, shopping centers, hotels, and apartment complexes. Equity REITs generate revenue through rent, and they distribute most of their earnings to shareholders in the form of dividends.

Mortgage REITs

Mortgage REITs invest in real estate mortgages rather than owning physical properties. They purchase and manage mortgages on real estate properties and generate revenue from the interest paid by the borrowers. Mortgage REITs typically pay higher dividends than equity REITs.

Hybrid REITs

Hybrid REITs invest in both physical properties and real estate mortgages. They offer investors the opportunity to invest in a diversified portfolio of real estate assets and generate income from both rent and interest payments.

Public Non-Listed REITs (PNLRs)

PNLRs are publicly registered but not listed on a national stock exchange. They are sold through broker-dealers and typically have lower fees than publicly traded REITs. PNLRs are often used as a tool for financial advisors to provide their clients with access to the real estate market.

Private REITs

Private REITs are not registered with the Securities and Exchange Commission (SEC) and are not available to the general public. They are sold through private placement offerings and are only available to accredited investors. Private REITs offer higher potential returns but carry higher risks than publicly traded REITs.