Investing in REITs

Quite often we hear about REITs being traded on the stock exchange or included in mutual funds. But what exactly is a REIT? My name is Alana Hartley and today I am going to explain to you about REITs. R-E-I-T is the acronym for "Real Estate Investment Trust", according to NAREIT the definition of a REIT is: A company that owns and operates income-producing real estate. There are some REITs that finance real estate. To be a public REIT, a company must distribute at least 90% of its taxable income to shareholders in the form of annual dividends. The REIT vehicle has become an important portion of the investment markets. There are at least five benefits as to why REITs have grown in popularity by policy makers and investors alike in the United States - diversification, dividends, liquidity, performance, and transparency. The US REIT market has seen its equity market capitalization sky rocket from $90 billion to more than $300 billion in just the past ten years. During that period, the growth has set the stage for the adoption of the "REIT approach" to securitized real estate investment across the globe. There are three different types of public REITs -equity, mortgage, and hybrid. Equity REITs own assets, mortgage REITs own debt, and hybrid REITs own both. Most companies invest in a specific property type including - retail, office, apartment, warehouse, and hotel. A REIT is a tax designation for the corporation investing in real estate. This tax designation reduces or even eliminates corporate income taxes. As stated before, REITs are required to distribute 90% of its income; the returns are in annual dividend form, which maybe taxable on the hands of investors. Originally created by Congress in the 1960s, REITs were designated to make investments in commercial real estate accessible to all investors in the same way they typically invest otherwise. This is done through the purchase and sale of liquid securities without being taxed on two separate levels. There are many stipulations that a company must abide by in order to file under the REIT tax status. Four of the most important policies are: One, 95% of its income must be derived from dividends, interest, and property income. Two, dividends must be paid on at least 90% of the REIT's taxable income. Three, the firm must make sure at least 75% of total investment assets are in real estate. And Four, the firm must derive at least 75% of gross income from rents or mortgage interest. In sum, investing in REITs is a liquid, dividend paying means of participating in the real estate market. I am Alana Hartley and this is Corporate Advisory Insight.