REIT
What is a REIT? A Real Estate Investment Trust is like a Stock or an ETF, in the sense that it’s a security tradeable on the secondary market.
The picture above is actually pretty much perfect. There were prettier pictures, but they were from other countries. I have no desire at this time to determine whether or not there is a difference in REIT structure between nations. (Spoiler - there is). Now is probably the time to mention that Rockydennis Presents and RDP Arkenstone operate out of the United States.
So let’s say you want to get into income properties, but don’t, can’t, won’t do so at present. You want a regular monthly income from real estate, but lack the means/inclination to go buy a house and find a tenant. Maybe you’ve done that and have sworn off tenants forever.
When you buy a share of a REIT, you’re basically giving your money to a third party to invest for you. In return, they distribute 90% of their profits to shareholders. Typically this comes in the form of a monthly dividend.
That’s really all there is to it, from a practical sense.. But just for fun, let’s copy and paste some information from the internet.
KEY TAKEAWAYS
REITs purchase commercial properties and distribute the rental income to shareholders as dividends.
A REIT purchases different properties—condominium complexes, large apartment buildings, hotels, office buildings, storage centers, retail outlets, and other similar properties—and leases or rents them out to tenants
How REITs Work
REITs are actually tax breaks for corporations. That's good news for you, the investor. In order to qualify, REITs must distribute at least 90% of their profits back to their shareholders as dividends. This helps the corporation qualify for some lower taxation while helping the investor to reap a larger portion of the profits than they otherwise may have been able to.
Types of REITs
There are three types of REITs:
Equity REITs. Most REITs are equity REITs, which own and manage income-producing real estate. Revenues are generated primarily through rents (not by reselling properties).
Mortgage REITs. Mortgage REITs lend money to real estate owners and operators either directly through mortgages and loans, or indirectly through the acquisition of mortgage-backed securities.
So yeah, pretty much just the same info over and over. REITs can be purchased via mutual funds, or ETFs. I lie being able to write covered calls on my shares, but mutual funds are nice, too.
What Qualifies as a REIT?
Invest at least 75% of total assets in real estate, cash, or U.S. Treasuries
Derive at least 75% of gross income from rents, interest on mortgages that finance real property, or real estate sales
Pay a minimum of 90% of taxable income in the form of shareholder dividends each year
Be an entity that's taxable as a corporation
Be managed by a board of directors or trustees
Have at least 100 shareholders after its first year of existence
Have no more than 50% of its shares held by five or fewer individuals
Alright, one more copy/paste and then we’ll call it good.
REITs can be further classified based on how their shares are bought and held:
Publicly Traded REITs. Shares of publicly traded REITs are listed on a national securities exchange, where they are bought and sold by individual investors. They are regulated by the U.S. Securities and Exchange Commission (SEC).
Public Non-Traded REITs. These REITs are also registered with the SEC but don’t trade on national securities exchanges. As a result, they are less liquid than publicly traded REITs. Still, they tend to be more stable because they’re not subject to market fluctuations.
Private REITs. These REITs aren’t registered with the SEC and don’t trade on national securities exchanges. In general, private REITs can be sold only to institutional investor
REIT TLDR
Receive Monthly Income From Rental Properties, Without Buying the Property
