How to Understand REITs
A real estate investment trust, or REIT, is a stock exchange-traded investment vehicle based on real estate. Individual REITs tend to focus on a specific area of real estate, office or residential or retail, for example, but some REITs are diversified and invest in all areas of real estate. REITs have special tax advantages compared to other companies in that they avoid most corporate income tax. But IRS regulations require that REITs distribute at least 90 percent of their taxable profits as dividends to their shareholders.
Other People Are Reading
Instructions
-
-
1
Research real estate investment trusts. Learn how investment trusts compare to mutual funds and other investment vehicles (including traditional real estate investments and company stocks) and decide whether they are right for you.
-
2
Research specific REITs. There are hundreds to choose from (including mortgage REITs and a couple of REITs that only invest in golf courses), but you should probably limit yourself to three or four to start with. Compare the net asset value (NAV) of the REITS you are looking at as well as the ROI (return on investment, which is the increase in NAV + dividend) over time to decide which one(s) look best to you.
-
-
3
Make a small investment in one or two REITs on a test basis. Follow your REITs closely (they are listed on the NYSE and NASDAQ exchanges like any other stock) and note how the investment performs over time. If the REIT is producing a steady profit and you like the types of investments the management is making, consider increasing the amount you have invested.
-
1
Tips & Warnings
Only invest with funds you will not need for several years as some REITs can be volatile investments.
