Introduction to REITs – An Essential Guide for Novice Realtors
The primary aim of all realtors is to invest in income-generating real estate. Doing so is a great way to enhance your net worth in the long haul. If you are a novice in the field of investing, there is something that you need to know – not all real estate investments are profitable. Many individuals who invest in real estate, especially in commercial property, do not turn out to be successful. Of course, if you invest in quality property, you will be able to make good profit. Unfortunately, not all novice realtors have the necessary funding to make such high investments. But what if you can pool your funding with a number of other small-time investors? What if you can collectively invest in a high-profit large-scale commercial real estate? If this seems like a legitimate idea to you, then do know that REITs are the answer to your prayers.
What is a REIT?
REIT stands for Real Estate Investment Trust, and is sometimes called “real estate stock”. REITs are organizations that own and operate a portfolio of real estate and mortgages. These trusts are the best way to enjoy the benefits of real estate ownership without having to handle much responsibility. If you do not fancy being a landlord, then this is a great option for you.
How Do They Work?
REITs are required to distribute 90% of their taxable income to all investors involved. This generous distribution has made these companies rely on external funding as their key capital source. These funds are used to buy, develop and operate various types of real estate assets. When investing in a REIT, remember that you will only own a portion of the real estate property. The income can be generated through renting, leasing or even selling. The profits you receive will depend on the market value of the property and the percentage of shares you hold. During the payout, the dividends are equally distributed to shareholders directly as a percentage of paid-out taxable income.
There are multiple reasons as to why you should invest your money in these trusts. Firstly, these companies are publicly traded. This means that they offer you an opportunity to balance your real estate portfolio. Secondly, you will be provided with an ongoing dividend income. Moreover, you might receive long-term capital gains through share price appreciation after a few years. Most importantly, REITs are considered to be more profitable than other types of stocks due to the tax exemption. Its ability to pass through taxation has enabled the dividends to be more profitable, thereby allowing the shareholders to get more income out of their investment.
Who Runs Them?
Typically, the board of directors of a REIT is elected by its shareholders. The directors usually are real estate professionals who are well respected in the field. These individuals are responsible for selecting the company’s investments. Moreover, they are also responsible for hiring the management team which handles the day-to-day operations of the properties.
REITs are a great opportunity for novice realtors who wish to diversify their investments. This investment opportunity is not only profitable, but it is highly flexible as well.