Get Wealthy Investing in a REIT
Do you have a REIT in your portfolio?
There are many different strategies of making money in real estate. You can buy low, fix up the property and sell high. Another approach is to purchase notes and/or mortgages. Then, there’s always investing in commercial real estate. Another great option is a Real Estate Investment Trust. REIT’s are a way to invest in real estate without actually having to find and/or inspect a property. You don’t need to deal with real estate agents, lenders, escrow or even sellers. Real Estate Investment Trusts are like mutual funds.
How does a REIT work?
A private company buys and/or finances investment property that produce cash flow every month. Or that company buys and hold mortgages for the interest payments. The private company then sells shares to investors via the stock market. The company will pay investors from the properties and/or mortgages in their portfolio through dividends. Those companies are required to pay out most of their taxable income to their shareholders. The shareholders then pay income taxes on the dividends they receive.
What kind of Real Estate can be in a REIT?
A REIT can consist of pretty much all income producing property and/or mortgaged property. From single family homes to duplexes to the largest apartment buildings. There are REIT’s for retail buildings, healthcare, offices, self storage, timber and industrial buildings to name a few.
3 Types of REIT’s
Equity – This type actually buys and sells income producing properties.
Mortgage – This type only involves actual mortgages or mortgage backed securities.
Hybrid – This type uses strategies that incorporate both actually buying and selling income properties as well as mortgages and/or mortgage backed securities.
Why invest in REIT’s?
1. They let pretty much anyone invest in large scale real estate operations easily
2. Can easily liquidate your position because shares are bought and sold just like other shares on the stock market
3. Get paid dividends continually regardless of share value
4. Experience asset appreciation without doing any of the work
5. Diversified portfolio. Statistically REIT’s don’t follow the broad stock market and in many cases outperform the stock market as a whole
How do companies qualify to be a REIT?
1. Must be a taxable corporation
2. 75% of assets must be invested in Real Estate
3. After year 1 of existence must have 100 shareholders
4. Shares must be transferable
5. Company must be managed by trustees or a board of directors
6. No more then 50% of company owned by less then 5 individuals
7. 75% of revenue must come from real estate activities
8. No more then 25% of assets in non qualifying securities
9. Must distribute at least 90% of taxable income in the form of dividends to shareholders
How to find REIT’s
Finding these are as easy as going to reit.com. That site has pretty much all types of REITs across most exchanges and states. A few multi billion dollar REIT’s are the Federal Realty Investment Trust http://www.federalrealty.com/ and Washington Real Estate Investment Trust http://www.washreit.com/. Both of these specialize in office, retail and multi-family real estate.
Technology has introduced other innovative ways to invest in real estate on a fractional basis. Sites like https://www.realtyshares.com/ and https://www.lendinghome.com and https://www.lendinghome.com offer an online approach to getting in to real estate investments with little money and no responsibility to the property(s).