REITS

REITS

A REIT is a company that owns and operates income-producing real estate or other related assets. Examples include shopping malls, apartment complexes, data centers, healthcare facilities, hotels, infrastructure (fiber cables, cell towers, and energy pipelines), office buildings, retail centers, timberland resorts, self-storage facilities, warehouses, and mortgages and loans. There are currently over 225 publicly-traded REITs in the U.S. Unlike other real estate companies, a REIT company does not develop properties to resell them. Instead, the REIT buys and develops properties mainly to operate them as part of its own investment portfolio.

REITS were established in 1960 by Congress as an amendment to the Cigar Excise Tax Extension. This provision allows investors to buy shares in commercial real estate portfolios. To invest in publicly traded REITs one would purchase shares through a broker. For non-traded REITs one would purchase shared through a broker or financial advisor who participates in the non-traded REIT offerings. Shares of publicly traded REITs are listed on the national securities exchange, where individual investors can easily buy and sell them. Public non-traded REITs do not trade on the national securities exchange and as a result are less liquid than their publicly traded counterparts.

There are three types of REITS; Equity, Mortgage and Hybrid. The first form is an Equity REIT. An Equity REIT owns and operates income-producing real state. Rent is the primary revenue source for Equity REITs. The second type of REIT is a Mortgage REIT. Mortgage REITs provide money to real estate owners and operators either through mortgages and loans or by way of acquisition of mortgage-backed securities. Revenue is made the spread between the interest they earn on mortgage loans and the cost of funding the loans. The last kind of REIT is a Hybrid REIT that owns properties and holds mortgages, combining the investment strategies of an equity and mortgage REIT.

The REIT market is widespread providing the everyday investor a means of participating in the real estate market without having to buy and manage property.