Real Estate Investment Trusts or REITs make investments in large-scale, income producing real estate accessible to average investors. A REIT is a corporation which owns a portfolio of real estate and issues stock to investors. The Internal Revenue Code states numerous criteria for a company to qualify as a REIT; including, investing at least 75% of its total assets in real estate, deriving at least 75% of its income from rents or interest on mortgages, and annually paying at least 90% of its taxable income in the form of shareholder dividends.
Equity REITs purchase, own, and manage income producing real estate properties. In general equity REITs develop the properties to operate themselves rather than developing properties for sale. Revenues come from rental income and capital gains from the sale of properties. Mortgage REITs loan money to real estate owners and operators or purchase existing mortgages / mortgage backed securities. Revenues come from interest earned on mortgage loans. Hybrid REITs engage in a combination of both activities.
Most Real Estate Investment Trusts, but not all, have some type of specialty. Some may own a specific type of property (shopping centers, health care facilities, apartments, data centers, etc) or a specific type of lease (ex. only triple net leases). Others may focus on a certain region, country, state, or even city
I recommend REITs to some of my clients as an alternative asset. A small proportion of REITs are registered with the Securities and Exchange Commission and traded on a major stock exchange. As of 1/1/2012 only 166 REITs were publically traded. A much larger percent of REITs are registered with the SEC, but not publically traded.
Real Estate Investment Trusts can be an investment for you. Contact Kolinsky Wealth Management to see if REITs are suitable for your needs.