What is REITs

What are REITs

REITs stands for Real estate investment trusts it allow individuals to invest in large-scale, income-producing real estate. A REIT is a company that owns and typically operates income-producing real estate or related assets. REITs may include office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, warehouses, and mortgages or loans. Unlike other real estate companies, a REIT does not develop real estate properties to resell them. Instead, a REIT buys and develops properties primarily to operate them as part of their own investment portfolio.

Why to invest in REITs

REITs provide a way for individual investors to earn a share of the income generated through commercial real estate ownership – without actually having to go out and buy commercial real estate. It is good for the small investors who can not buy large property due to less income source but they are keen to invest in real estate, its very good opportunity for them to invest in real estate through REITs. Investment amount can be as per their income.

TYPES OF REITs

Many REITs are registered with the security and exchange commission and are publicly traded on a stock exchange. These are known as publicly traded REITs. Others may be registered with the security and exchange commission but are not publicly traded. These are known as non- traded REITs (also known as non-exchange traded REITs). This is one of the most important distinctions among the various kinds of REITs. Before investing in a REIT, investor should understand whether or not it is publicly traded, and how this could affect the benefits.

BENEFIT AND RISK OF REITs

REITs offer a way to include real estate in one’s investment portfolio.  Some REITs may offer higher dividend yields than some other investments.

But there are some risks, especially which are not traded on exchange for REITs. Because they do not trade on a stock exchange, non-traded REITs involve special risks:

Some risks are enumerated below which are not traded on exchange.

• Lack of Liquidity
• Share Value Transparency
• Distributions May Be Paid from Offering Proceeds and Borrowings:
• Conflicts of Interest

How to buy and sell REITs

Investors can invest in a publicly traded REIT , which is listed on a major stock exchange, by purchasing shares through a broker. You can purchase shares of a non-traded REIT through a broker that participates in the non-traded REIT’s offering. Investors can also purchase shares in a REIT mutual fund or REIT exchange-traded fund.

TAX IMPLICATION ON REITs INVESTMENT

Publicly traded REITs can be purchased through a broker. Generally, It can purchase the common stock, preferred stock, or debt security of a publicly traded REIT. Brokerage fees will apply.

Non-traded REITs are typically sold by a broker or financial adviser. Non-traded REITs generally have high up-front fee. These costs lower the value of the investment by a significant amount.

Special Tax Considerations

Most REITS pay out at least 100 percent of their taxable income to their shareholders. The shareholders of a REIT are responsible for paying taxes on the dividends and any capital gains they receive in connection with their investment in the REIT. Dividends paid by REITs generally are treated as ordinary income and are not entitled to the reduced tax rates on other types of corporate dividends. Consult  your tax adviser before investing in REITs.