REIT stands for Real Estate Investment Trust. In simple terms it is a trust or organization that holds various types of properties and real estate. This can include farm land, commercial real estate, apartments, etc.
When you invest in a REIT, you are an actual holder of a piece or share of that real estate. The benefit of owning a REIT as opposed to owning the actual property is you do not have to manage it and you are somewhat diversified. The REIT will usually own numerous properties in various locations. A REIT is required to return 90% of its income back to the investors. Now this does not mean you make 90%, it means you get most of the income back after expenses.
During the real estate boom of several years ago, REITs were typically returning very handsome returns, often as high as 20% returns annually. As of the last few years, they have obviously lost their appeal and their value. However, now may be time to consider investing in a REIT, now that they are low again.
Chances are that they will not experience the growth of mid-2000 era, but they can still be a part of your diversified portfolio and get you out of the area of stocks and bonds.
There are 2 types of REITs and those are PUBLIC and PRIVATE. The differences are discussed below:
Public REIT - This is really traded similar to a stock. A company sells shares for a certain dollar amount and you purchase these shares. The value of these shares varies daily based on market conditions related to valuation. Periodically profits are returned to you and you can re-invest them in additional shares or receive them in cash. If you want to get out of the REIT, you sell your shares and this could be for a higher or lower share price then you originally paid.
Private REIT - In the case of a private REIT you usually buy shares in the REIT but at a fixed price. This price is usually set and there is a limited amount of shares available. Typically the private REIT has a lifespan, meaning the management company of the REIT has some financial goals for a set amount of time. Once the property of the REIT has appreciated or grown, the private REIT is sold and the people who own shares receive a higher price. Think of it similar to buying your house. You buy a house, hold it for a certain number of years. During this time you have paid down the loan on the house and the house has hopefully appreciated. When you sell you receive your money back.
Private REITs usually pay dividends monthly or quarterly while your money is tied up in the REIT. It is generally higher than a savings account or bond, sometimes 5% to 7%. You can receive this as cash or re-invest back into the REIT.
Real Estate Investment Trusts are a good way to spread your money, but keep in mind they are not federally insured. The last few years have been tough on this market, so do some research before you go this route. However, there are certainly some good options in REITs available out there today.
When you invest in a REIT, you are an actual holder of a piece or share of that real estate. The benefit of owning a REIT as opposed to owning the actual property is you do not have to manage it and you are somewhat diversified. The REIT will usually own numerous properties in various locations. A REIT is required to return 90% of its income back to the investors. Now this does not mean you make 90%, it means you get most of the income back after expenses.
During the real estate boom of several years ago, REITs were typically returning very handsome returns, often as high as 20% returns annually. As of the last few years, they have obviously lost their appeal and their value. However, now may be time to consider investing in a REIT, now that they are low again.
Chances are that they will not experience the growth of mid-2000 era, but they can still be a part of your diversified portfolio and get you out of the area of stocks and bonds.
There are 2 types of REITs and those are PUBLIC and PRIVATE. The differences are discussed below:
Public REIT - This is really traded similar to a stock. A company sells shares for a certain dollar amount and you purchase these shares. The value of these shares varies daily based on market conditions related to valuation. Periodically profits are returned to you and you can re-invest them in additional shares or receive them in cash. If you want to get out of the REIT, you sell your shares and this could be for a higher or lower share price then you originally paid.
Private REIT - In the case of a private REIT you usually buy shares in the REIT but at a fixed price. This price is usually set and there is a limited amount of shares available. Typically the private REIT has a lifespan, meaning the management company of the REIT has some financial goals for a set amount of time. Once the property of the REIT has appreciated or grown, the private REIT is sold and the people who own shares receive a higher price. Think of it similar to buying your house. You buy a house, hold it for a certain number of years. During this time you have paid down the loan on the house and the house has hopefully appreciated. When you sell you receive your money back.
Private REITs usually pay dividends monthly or quarterly while your money is tied up in the REIT. It is generally higher than a savings account or bond, sometimes 5% to 7%. You can receive this as cash or re-invest back into the REIT.
Real Estate Investment Trusts are a good way to spread your money, but keep in mind they are not federally insured. The last few years have been tough on this market, so do some research before you go this route. However, there are certainly some good options in REITs available out there today.