A Real Estate Investment Trust (REIT) is a company that own or finances the income production in real estate sector. This is modelled after mutual funds and allows everyone to invest in portfolios of large scale properties the same way they invest in other industries through purchase of stocks. The stockholders of REITs earn a share of the income produced through real estate investment. Publicly traded REITs offer investors the benefits of commercial real estate investment along with advantages of investing in publicly traded stock.
Most REITs operate along a straightforward and easily understandable business model. By increasing rents and property occupancy over time, higher levels of income may be produced. REITs in other countries have demonstrated a historical track record giving good income and long term share price appreciation, inflation protection and prudent diversification for investors. So REITs financial benefits can be sum totaled under the following headings:
Diversification- Increased return; reduced risk
Inflation Protection- Natural Inflation Hedge.
Liquidity- Portfolio rebalancing
Transparency- Market and tax transparency with strong corporate governance
Income- Reliable income returns with reduced portfolio volatility.
Performance- Outperformed better returns delivering growth income.
To form an REIT one needs to follow a standard tax procedure. Individual investors represent a core component of REIT investment universe. You could invest in individual companies through REIT mutual fund or exchange traded fund or through a retirement plan. Individuals have now recognized the benefits of including an REIT allocation in their portfolios.
REITs are total return investments. They typically provide high dividends plus potential for moderate to long term capital appreciation. Its returns are between higher risk, higher growth stocks and lower risk bonds. REITs are required by law to distribute at least 90% of their taxable income to their shareholders. Thus you can enjoy higher dividends including REITs in your investment plans and can diversify your investment portfolio.
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