Real estate investment trusts are professionally managed and publicly traded companies that own and operate income-producing real property. They provide an opportunity for investors to diversify their portfolios with a relatively low-risk asset that has historically outperformed stocks, says NerdWallet’s real estate expert.
In the past 20 years, REIT total returns have outperformed the S&P 500 and other stock indices, according to the National Association of Realtors. They can also provide steady dividend income and long-term capital appreciation. REITs’ income is taxed at the corporate level, rather than at the individual investor level, which makes them a good choice for investors who want to minimize their taxes. Also read https://www.qualitypropertiescashbuyer.com/sell-my-house-fast-in-crestview-fl/
REITs were created in 1960 with an amendment to the Cigar Excise Tax Extension, giving the general public access to large-scale diversified portfolios of commercial properties, which had been previously available only to wealthy individuals and institutions through large financial intermediaries. Today, REITs own and operate a wide range of property types, including data centers, shopping malls, apartment complexes, hotels, self-storage facilities, warehouses and timberland.
Public REITs are listed on national securities exchanges and trade continuously throughout the trading day. That means they’re more liquid than traditional real estate and can be bought and sold with the same ease as stocks and bonds. Some REITs, especially those that specialize in a particular type of property, can be very sensitive to economic changes and may see their prices fluctuate widely.
Typically, REITs earn money from the rent they collect from tenants and by lending them capital, such as through mortgages. They must invest at least 75% of their assets in real property and derive at least 90% of their taxable income from those sources. The remainder of their taxable income can be from interest payments on loans to finance real property and from sales of other assets.
When choosing REITs, look for ones with a solid track record and experienced management team. You should also check REITs’ financials carefully to understand their business model and whether it’s a fit for your portfolio. Also, be wary of REITs with heavy debt levels, as they tend to have higher interest rates than other businesses and are impacted by the economy.
There are two types of REITs: publicly traded and private. Public REITs are registered with the SEC and traded on national securities exchanges, making them very liquid investments. There are also public non-traded REITs, which don’t list on a national exchange and are only available for sale through private placement, meaning they have high minimum investments and can be difficult to sell. Finally, there are private REITs that don’t even register with the SEC and are only sold to accredited investors or through a network of real estate professionals. Beware of these, as they lack the consumer protections and avenues for redress that are provided by publicly traded REITs.
