RIET or Real Estate Investment Trust can be considered as a company or an investment fund that owns, manages or operates the income of the investors in the real estate to generate a valuable profit by investing in it. A group of people come together and contribute some of their income to have a high value profit in highly priced or expensive real estate. It allows both small and big investors to have ownership of the real estate without actually buying it. Money can be invested on estate like buildings, hospitals, hotels, shopping centers etc.
Advantage of REIT in comparison to buying property
Investing money in real estate is more valuable than using that money to buy your own property if you have less amount of fund. You will have more profit and increased amount of capital will be seen. Expert and professional team is always sitting to look after all the chores and activities of the investing estate.
Requirements for a company to become to qualify as REIT
- There must be at least 100 shareholders in a particular REIT.
- No investors can have 50% of the share.
- Minimum 80% of total money should be invested in commercially like in hotels, malls etc.
- It is mandatory to give at least 90% of the dividend to the shareholders 2 times a year. Then the investors can pay tax for that profit.
- 75% of income should be gained from real estate investment.
- At least 95% of total income must be invested.
Types of REITs
There are 5 most common types of REITs
REITs, in which income is generated in the form of rent, come under equity REITs. These REITs are most popular one. These manage or produce income generating commercial properties.
It is also called m-REITs in which income is obtained be lending money to real estate owners and asking for extension for mortgage facilities. Income is derived by getting the interest on mortgages loans and cost of funding these loans.
We can think of combination of equity and mortgage REITs in hybrid. Income obtained in this type of REIT is both from rent and interest.
In this REITs are not traded in national stock exchange. These work as private placements and have only selective list of investors and are exempt from regulatory registration.
These are registered with regulatory bodies but do not exchange in national stock exchange.