Real Estate Investment Trust In UK, A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate. Modeled after mutual funds, REITs pool the capital of numerous investors.
This makes it possible, for an individual investors to earn dividends from real estate investments without having to buy, manage, or finance any properties themselves. Checkout Commercial real estate in US
How Real Estate Investment Trust In UK, Works
having known the full meaning of real estate investment trust let us proceed to to explain how it works for more understanding.
if you are investing on Real estate investment trust, it allows you to ow or finance properties the same way people invest in other companies through the purchase of stock.
In the same way shareholders benefit by owning stocks in other corporations, the stockholders of a REIT earn a share of the income produced through real estate investment, without actually having to go out and buy or finance property.
most of the Real estate investment trust industry has a diverse profile, which offers many benefits.
REITs often are classified in one of two categories, equity REITs or mREITs.
Equity REITs own a wide range of property types including offices, shopping centers, hotels, apartments and much more.
Equity REITs derive most of their revenue from rent on those properties.
most of the times Real estate investment trust can finance both residence and commercial properties.
most of the revenue they have gathered are from some the investment they have made earlier in the business, through the mortgage backed securities.
Also most of the real estate investment fund are publicly registered in the securities and exchange commission, at the same time some of the companies are private companies from different individual.
there some rule in which every real estate investment trust operate in every country. below are some of the rules in which they operate.
the IRS implement the real estate investment trust, rules and oversees what qualifies as the REIT.
then you have to understand that the internal revenue requires the real estate investment trust
To adherer to some of the rule that are meted out for them the rule are the following,
There different types of Real estate investment trust and they are the following
There are three types of REITs; equity, mortgage, and hybrid.
Equity REITs operate and manage income-producing property. This is the most popular type of REIT and usually earns income from rents.
Mortgage REITs lend money to property owners and operate like a mortgage. Mortgage REITs can also acquire mortgage-backed securities.
Unlike equity REITs that earn money from activities associated with commercial property, mortgage REITs earn money from interest on the money lent to property owners.
Hybrid REITs diversify their portfolio by investing in both equity REITs and mortgage REITs. The income for hybrid REITs comes from both rent and interest.
Why you should invest in real estate investment trust
REITs are total return investments. They typically provide high dividends plus the potential for moderate, long-term capital appreciation.
Long-term total returns of REIT stocks tend to be similar to those of value stocks and more than the returns of lower risk bonds.
Because of the strong dividend income REITs provide, they are an important investment both for retirement savers
And for retirees who require a continuing income stream to meet their living expenses.
REITs dividends are substantial because they are required to distribute at least 90 percent of their taxable income to their shareholders annually.
Their dividends are fueled by the stable stream of contractual rents paid by the tenants of their properties.
The relatively low correlation of listed REIT stock returns with the returns of other equities and fixed-income investments also makes REITs a good portfolio diversifier.
Advantages of Real Estate investment Trust
A real estate investment trust (REIT) is a company that owns and manages income-producing real estate.
REITs were created by an act of Congress in 1960 to enable large and small investors alike to enjoy the rental income from commercial property.
REITs are governed by many regulations, the most important being that they
must distribute at least 90% of their taxable income to shareholders each year as dividends; the REIT is permitted to deduct dividends paid to shareholders from its taxable income. Other important regulations include:
- Asset requirements: at least 75% of assets must be real estate, cash, and government securities.
- Income requirements: at least 75% of gross income must come from rents, interest from mortgages, or other real estate investments.
- Stock ownership requirements: shares in the REIT must be held by a minimum of 100 shareholders.
REITs specialize by property type. They invest in most major property types with nearly two thirds of investment being in offices, apartments, shopping centers, regional malls, and industrial facilities. Checkout American visa lottery
The rest is divided among hotels, self-storage facilities, health-care properties, and some specialty REITs that own anything from prisons, theatres, and golf courses to timberlands.
For many investors, the main attraction of REITs has been their dividend yield.
The average dividend yield for REITs was about 4.3% in September 2012, well more than the yield of the S&P 500 Index,
But pretty far below the longer-term average for REITs, which had been trending in the 7%-8% range (recent REIT popularity has pushed stock prices up and yields down).
Also, REIT dividends are secured by stable rents from long-term leases, and many REIT managers employ conservative leverage on the balance sheet.