Real Estate Investment Trust
November 23, 2018
A real estate investment trust, also known as a REIT, is when commercial real estate is backed by a company that makes equity or debt investments. A REIT investor can buy company shares and earn an income based on the equity investments and debts of the company through dividends. A REIT investment is much like a mutual fund that allows your typical investor to have public access to investing in real estate. A real estate investment trust, by law, must invest a minimum of seventy-five percent of the assets in real estate and earn a minimum of seventy-five percent of its income from real estate. A minimum of ninety percent of the taxable income must be distributed to the shareholders yearly.
There are three categories for real estate investment trusts these days: publicly-traded REITs, public non-traded REITs, and private REITs.
A publicly-traded REIT is in the stock market and registered with the SEC. These REITs, unlike most investments in real estate, require no minimum investment and are highly liquid. You must simply pay the price of the share to participate, making them easy to buy and sell. Though they are the easiest to access and sell on the public market, they are also the most volatile.
A public non-traded real estate investment trust is a bit of a hybrid between the private REIT and the publicly-traded REIT. They are not on the stock exchange but are SEC-registered. Investment minimums will vary and they can be restricted or open. They will often have a high investment and are illiquid.
A Private REIT isn’t traded publicly in stocks and isn’t registered with the SEC. Generally, they are limited to high net worth investors who are accredited. The minimum investment can be subjective, but typically are substantial. There are also usually high fees up to fifteen percent with private REITs. A private REIT will tie your money up for a long time, as well, and are usually illiquid.