A REIT can be a company, firm, or group with assets in real estate. They own, finance, or operate an estate business by accumulating long-term investment through owning, leasing, buying mortgages, or giving out loans to boost the real estate sphere. They target their investors with a stable flow of dividend income.
They attract investors with dividend income from the tax privileges while remitting 90% of taxable income to investors since they are not liable to corporate tax.
However, they are not tax-free. REITs pay income taxes on every dividend and capital gain. But stock dividends attract lower tax rates.
Types of REITs
REITs are categorized into three categories: mortgage, equity, and hybrid. These three are further divided into three types concerning investment purchase: public traded, public non-traded, and private REITs.
Investment Holdings REITs
Equity REITs: they provide the duties of a landlord such as owning properties, maintaining and reinvesting properties, and collecting rents – including all the managerial tasks.
Mortgage REITs: this group doesn’t own properties but debt securities to support the property. The art is also referred to as mREITs. For example, if you apply for a mortgage on a property, this group buys from the original lenders to make back their money and profit over time. However, a higher risk is associated with mortgage REITs, unlike equity REITs, because they pay higher dividends.
Hybrid REITs: this group does the tasks of equity and mortgage REITs. They own and operate the estate and other commercial property mortgages.
Trading Statues REITs
Publicly traded REITs: this group focuses on an exchange such as stock and ETFs traded openly in the market. The market has over 200 public exchanges and is bought through a brokerage account. The National Association of Real Estate Investment Trusts, or Nareit, makes them available, creating transparency and authorized standards. These stocks can easily be bought and sold at any time.
Public non-traded REITs: this group is sanctioned by the SEC and is not for exchange. You can get it through a broker with ties to a public non-traded offering like the online estate broker Fundraise. Because of their private status, they can’t easily be liquidated, which often takes more than eight years, as stated by the Financial Industry Regulatory Authority.
According to the SEC, the value of these REITs is low and often takes 18 months to have a return on investment. However, you can get these public non-traded REITs through websites like the Diversity Fund, Motiv, and Realty Mogul.
Private REITs: these REITs are not sanctioned by the SEC, have lower value, and are not listed for purchase. They have limitations like fewer agreement and disclosure requirements which hinders investors from participating in the exchange. Also, these REITs are with more significant risks, unlike the others.
Public non-traded REITs and private REITs’ minimum balances are usually higher, up to $25,000 to start trading, and have abrupt charges, unlike publicly-traded REITs. Thus, these investments are explicable for people with more than $1 million net worth, excluding the worth of their primary home, or have a yearly income of more than $200,000 for singles and $300,000 for couples.
How to Invest in Public REITs
You can get public REITs, mutual funds, and ETFs with an online brokerage account. An employee can buy shares through an employer-sponsored retirement account. These shares are available in the employee retirement account. Your brokerage will offer tools for analyzing REIT performance, returns, and dividends. Also, research REIT’s management team to protect your pool of assets better. Knowing the management team will let you know if they are worth the managerial fees and if the REIT is profitable.
Public REITs can cost as low as a share. Fractional shares reduce the investment to $5 or less, making it quickly purchased for investors. Thus, the fund can be bought and sold during any exchange, making it a cash cow at any time.
How to Invest in Public Non-Traded REITs
Public non-traded REITs are challenging to purchase because they are in the form of an exchange and cannot be easily found on an online brokerage’s trading website. These assets are purchased from the REIT or a third-party broker. The investment is open to any but requires a minimum of more than $1 000.
However, there are crowdfunding websites for real estate investors like Fundraise, DiversyFund, and Realty Mogul, where you can get unlisted REITs. The downside is that these websites require investors with deep knowledge and passion and have years of business experience, like five years.
How to Invest in Private REITs
Private REITs are risky and expensive. The minimum requirement is more than $250,000, which a few investors can afford. These REITs are offered to rich folks or bought through broker-dealers. The assets are only sold in portions after specific years and can have high yearly management fees plus other sales fees. Private REITs are hard to track due to the SEC’s unavailable data, increasing the risk level for limited financial investors.
REITs are a catchy way to make money through real estate. They are the trending money formula among investors who enjoy playing safe on investment. Research, read, make your goal, and pick the suitable REIT investment to stick with your money.