A Real Estate Investment Trust (REIT) works as an investment company that controls the possession and management of revenue generation of real estate properties. Investing through REITs will allow you to claim several tax benefits and thus obtain a higher income from your real estate investments.
The following are the different types of REITs based on the type of real estate investment.
Equity REITs
These are trusts that own properties and generate their income from the rent paid for the property.
Mortgage REITs
These are the trusts that provide loans to property owners in return for a mortgage on a property. Mortgage REITs also buy mortgages and mortgage-backed securities, and get their revenue from the interest collected on mortgage loans.
Hybrid REITs
Hybrid REITs are trusts that generate their revenue from rent, like equity REITs, as well as interest on mortgages, like mortgage REITs.
Retail REITs
These are investment trusts that own and operate commercial ventures like shopping malls and industries. They earn their revenue by leasing out these properties to retail tenants.
Health Care REITs
These are trusts that invest in health care centres like hospitals, nursing homes, and retirement homes. Most health care REITs lease their properties to third-party managers who, in turn, pay them a fixed rent along with operational and maintenance costs.
Office REITs
Office REITs lease out buildings for official purposes, generally for a long time. They generate long-term revenue from the rent paid by these offices.
How Does a REIT Function?
A Real Estate Investment Trust needs to invest more than 75% of its total assets in real estate. For a REIT to be legal, it must have at least 100 investors. At least 90% of the profits earned by a REIT in its real estate ventures must be distributed among the investors. The REIT also cannot sell more than 50% of its stocks to 5 or less investors during the first half of a taxable year.
REIT is merely a pass-through entity which allows investors to purchase equity and transfer the profits to the shareholders. Since it is a pass-through entity, REIT is not taxable under federal or income tax laws. It is considered the duty of the shareholders to pay the taxes for their profits, as this is a source of income for them.
How to Invest in a REIT?
Anyone can invest in property through REITs without actually being a property owner. REIT shares offer liquidity, which means they can be sold and purchased easily. A REIT functions as a public sector market for investments in real estate.
Investing in REITs is similar to investing in any other venture or business. You invest by buying stocks or shares of a particular company and then receive a percentage of the profit earned by that company. The money that comes in from the different investors is used ทาวน์เฮ้าส์มือสอง กรุงเทพ by the REIT to invest in a lucrative real estate deal. The profit that it earns from that venture is then distributed between the investors.
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