What exactly is there to know about REITs? This section provides the basic information you need to help understand REITs better.
Real estate investment trusts, or REITs, are companies that own and operate income-producing real estate properties. Modeled after mutual funds, REITs allow you to invest and earn income through real estate properties without having to purchase property.
Today, REITs are found in every state and closely tied to the economy—apartments, hotels, fast food chains, shopping malls, offices, and more.
Before REITs, individuals needed a lot of money to invest in real estate, especially commercial properties. Only investors with a significant amount of capital could invest in real estate, making it inaccessible to others. This all changed in 1960 when President Dwight Eisenhower signed a law creating REITs to democratize real estate investment. Through REITs, investors could now share the gains or losses of a trust by purchasing a share of a REIT.
Still confused as how to REITs work? Here’s an example:
A certain REIT company owns several properties which they mainly rent to fast food chains.
The company purchases, manages, and maintains the properties while its shareholders invest and receive a share of the profits earned by said company.
They come from long-term leases. The fast food chains that occupy the company’s properties pay rent and, thus, generate revenue. Revenue (and new investments) is used by the company to purchase other properties or land to expand their business.
The company purchases, manages, and maintains the properties while its shareholders invest and receive a share of the profits earned by said company.
Still confused as how to REITs work? Here’s an example:
REITs provide a steady source of income, competitive return rates, and potential asset appreciation.
Depending on market conditions, REITs produce higher yields than other fixed-income investments or equities.
REITs are relatively stable since tenants pay a contractual monthly rent to property owners, thereby providing you with a regular income stream.
As a SEC-registered REIT, we are required to release quarterly and yearly financial reports.
Historically, REITs have outperformed corporate corporate bonds.
REITs provide a low-risk way to diversify your investment while increasing returns.
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