A Real Estate Investment Trust, or REIT, is a company that is set up like a mutual fund to offer real estate investment opportunities to a wide range of investors. In a REIT, the company owns and operates some income-producing real estate. A pool of investors contributes funds to the REIT to finance purchases and operations in return for a portion of the income. Congress established REITs in 1960 as part of the Cigar Excise Tax Extension. Before the creation of REITs, traditional real estate investors had to purchase and operate an entire property on their own, making it an investment opportunity only available to wealthy individuals. Modern REITs allow investors to invest a small amount of money to finance a property along with other investors, opening up real estate as a viable option for those without the time or funds to own and operate property by themselves. REIT portfolios can be composed of a variety of properties, including apartment complexes, warehouses, healthcare facilities, and infrastructures such as cell towers and energy pipelines. Most REITs specialize in a particular sector of real estate, however, some diversified REIT portfolios may consist of a variety of different real estate types. Like other financial instruments, REIT investing comes with its own set of pitfalls and advantages. Some advantages are outlined below. The disadvantages of investing in REITs are as follows: REIT Investing
REIT Example
Pros and Cons of Investing in REITs
Real Estate Investment Trust (REIT) FAQs
What does REIT stand for?
REIT stands for Real Estate Investment Trust.
What is a real estate investment trust (REIT)?
A Real Estate Investment Trust, or REIT, is a company that is set up like a mutual fund to offer real estate investment opportunities to a wide range of investors.
How is a REIT financed?
A pool of investors contributes funds to the REIT to finance purchases and operations in return for a portion of the income.
What do REITs allow investors to do?
Modern REITs allow investors to invest a small amount of money to finance a property along with other investors, opening up real estate as a viable option for those without the time or funds to own and operate property by themselves.
What types of properties can be found in a REIT?
REIT portfolios can be composed of a variety of properties, including residential, commercial, apartment complexes, warehouses, healthcare facilities, and infrastructure such as cell towers and energy pipelines.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
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