REIT investing – how to get started

REIT investing – how to get started

Steps to start Investing In REITs

There is a large difference between owning your own house and owning investment real estate.

Your primary residence will on average maintain inflation and also cost you about 1% of its value in maintenance and much more in insurance and property taxes.

Real estate which you lease to others, on the other hand, pays you rent money each month. Like your house, your rental property will on average maintain inflation, but the rent is, if you have priced nicely, sufficient to pay for the insurance, maintenance, and property taxes but still produce a profit. In other words, your real estate investment itself grows by inflation and you’ve still got profit above and beyond inflation.

This is why rental property is an investment while your house is not.

Owning and operating rental real estate requires a lot of work, but it can be profitable. The danger is that property is only one type of asset, it is often extremely leveraged, and it is illiquid meaning that you are not immediately in a position to sell it for a reasonable price. If you own leasing property, you should learn to evaluate your real estate investment as an investment and compute a roi each year.

That being said, there is another way to get a few of the benefit of investing in real estate without as much from the risk. One way is purchasing on the stock market is Investment Trusts (REITs).

REITs were created in 1960 by Congress to provide all Americans a vehicle to own long term real property investments. Along with this invention, they have put in location specific guidelines which REITs, unlike other stock market securities, should follow. The two biggest rules are:

First, over 75% of the value must be comprised of owning or financing real property. Equity REITs own property and get their income from leasing the properties. Mortgage REITs get their income from interest obligations from financing properties.


Investment Trusts (REITs) offer small investors the chance to take part in a broad range of real estate opportunities across most main property sectors and geographic locations. But to make the most from this proven investment vehicle, you must first gain a firm knowledge of it.

Getting Started in Real Estate Investment Trusts provides an accessible introduction towards the benefits and performance characteristics of REITs and examines the role they play inside a well-diversified investment portfolio.

Divided into three comprehensive parts, Getting Started in Real Estate Investment Trusts covers a multitude of issues within this field, including:
* The legal and credit history of REITs
* How REITs behave as an investment class and that they are best integrated into an investor’s portfolio
* The fundamental economic problems that affect real estate and how they impact REITs
* Specific means of analyzing REITs as an investment
* Different types of REITs: home, office, industrial, retail property, and more
Filled with in-depth understanding and practical advice, Getting Started in Real Estate Investment Trusts is a valuable road map to an investment that will help stabilize and grow your portfolio for years to come.

What exactly are REITs?
Real estate investment trusts (“REITs”) allow individuals to purchase large-scale, income-producing real estate. A REIT is a company that owns and typically operates income-producing property or related assets. These may include office buildings, shopping department stores, apartments, hotels, resorts, self-storage facilities, warehouses, and mortgages or financial loans. Unlike other real estate companies, a REIT does not develop properties to resell them. Instead, a REIT buys and develops properties primarily to operate them included in its own investment portfolio.
Why Would Somebody Invest In REITs?
REITs give a way for individual investors to earn a share of the income produced through commercial property ownership – without actually having to go out and buy commercial property.
What Types Of REITs Are There?
Many REITs are registered using the SEC and are publicly traded on a stock exchange. They are known as publicly traded REITs. Others may be registered using the SEC but are not publicly traded. These are known as non- traded REITs (also called non-exchange traded REITs). This is one of the most important distinctions among the types of REITs. Before investing in a REIT, you should understand whether it is publicly traded, and how this could affect the advantages and risks to you.
What Are The Benefits And Dangers Of REITs?
REITs offer a way to include real property in one’s investment portfolio. Additionally, some REITs may offer higher dividend yields than another investments.
But there are some risks, especially with non-exchange exchanged REITs. Because they do not trade on a stock trade, non-traded REITs involve

special risks:
Lack of Liquidity: Non-traded REITs tend to be illiquid investments. They generally cannot be sold readily on the actual open market. If you need to sell an asset to boost money quickly, you may not be able to do so with shares of the non-traded REIT.
Share Value Transparency: While the market price of the publicly traded REIT is readily accessible, it can be difficult to look for the value of a share of a non-traded REIT. Non-traded REITs typically don’t provide an estimate of their value per share until 1 . 5 years after their offering closes. This may be years after you earn your investment. As a result, for a significant time period you might be unable to assess the value of your non-traded REIT investment and it is volatility.
Distributions May Be Paid from Offering Proceeds and Borrowings: Investors might be attracted to non-traded REITs by their relatively high dividend yields when compared with those of publicly traded REITs. Unlike publicly traded REITs, nevertheless, non-traded REITs frequently pay distributions in excess of their money from operations. To do so, they may use offering profits and borrowings. This practice, which is typically not used through publicly traded REITs, reduces the value of the shares and also the cash available to the company to purchase additional assets.
Issues of Interest: Non-traded REITs typically have an external manager rather than their own employees. This can lead to potential conflicts associated with interests with shareholders. For example, the REIT may pay the external manager significant fees in line with the amount of property acquisitions and assets under management. These fee incentives might not necessarily align with the interests of shareholders.
How To Purchase and sell REITs
You can invest in a publicly traded REIT, that is listed on a major stock exchange, by purchasing shares via a broker. You can purchase shares of a non-traded REIT via a broker that participates in the non-traded REIT’s offering. You may also purchase shares in a REIT mutual fund or REIT exchange-traded account.
Understanding Fees And Taxes
Publicly traded REITs can be purchased via a broker. Generally, you can purchase the common stock, preferred share, or debt security of a publicly traded REIT. Brokerage costs will apply.
Non-traded REITs are typically sold by a agent or financial adviser. Non-traded REITs generally have high up-front costs. Sales commissions and upfront offering fees usually total approximately 9 to 10 % of the investment. These costs lower the value of the investment with a significant amount.
Special Tax Considerations
Most REITS pay out a minimum of 100 percent of their taxable income to their shareholders. The shareholders of a REIT have the effect of paying taxes on the dividends and any capital gains they receive regarding the their investment in the REIT. Dividends paid by REITs generally are treated as ordinary income and therefore are not entitled to the reduced tax rates on other kinds of corporate dividends. Consider consulting your tax adviser before investing within REITs.
Avoiding Fraud
Be wary of any person who attempts to market REITs that are not registered with the SEC.
You can verify the registration of both publicly traded and non-traded REITs with the SEC’s EDGAR system. You can also use EDGAR to review a REIT’s annual and quarterly reports in addition to any offering prospectus. For more on how to use EDGAR, make sure you visit Research Public Companies.
You should also check out the broker or investment adviser who recommends investing in a REIT. To learn how to do so, please visit Dealing with Brokers and Investment Advisers.

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