A real estate investment trust, or REIT, is a real estate company that works in much the same way that mutual funds do. The idea behind these trusts was to provide every individual in the U.S. an equal chance make investments with their money like those who are more affluent commonly invest in mutual funds.
Income Producing Real Estate
The term “Income Producing Real Estate” refers to any land and improvements that have been made on it, such as office buildings or rental properties. An REIT has the option for investing in these properties, providing them with income that is generated by collecting rent or through the investment of mortgages or mortgage securities that will serve the dual purpose of financing the property and generating income through interest.
Investments by the trust are done through the purchase of stock. Whereas shareholders obtain benefits by purchasing and owning stocks in other corporations, those who own stock in an REIT will receive part of the income that is created through their investment without being required to purchase or finance property.
Different Types of Real Estate Investment Trusts
These trusts are far from being a new idea. In fact, they are all around us. Some examples include:
• Apartment Complexes
• Student Housing
• Shopping Malls
• Cell Towers
These properties are found in any state and they account for millions of dollars in the country’s income through jobs and investments each year. In addition, REITs are located around the world, an idea that has been adopted in similar form by almost 30 other countries. This provides the option for individuals to invest in properties in locations around the world.
Equity VS Mortgage Real Estate Investment Trust
There are many different benefits offered by these trusts, most of which are classified as being either an Equity or Mortgage Trust. Those classified as an equity trust generate most of their revenue from rent. Mortgage Trusts, on the other hand, generate their revenue largely form interest that is earned from mortgage investments or from securities that are backed by mortgages. The large majority of the trusts (9 out of 10) are Equity trusts.
An REIT may be registered publicly with the SEC with shares listed and traded as major stock exchanges. Another option is to publicly register with the SEC without listing or trading the shares on the exchanges. Finally, they may be private and not be registered with the SEC.