What is REIT?? Real Estate Investment Trust is the name.
For most people, investing in real estate, is financially out of reach. But what if you could pool your resources with other small investors and invest in large-scale commercial real estate as a group?
REITs are corporations that own and manage a portfolio of real estate properties and mortgages. It is like Unit Trust or Mutual fund. This allow anyone to buy shares in a publicly traded REIT. With this, they offer the benefits of real estate ownership without the headaches or expense of being a landlord.In other words, it enable you to own real estate as part of your portfolio.
Investing in REITs also provides the important advantages of liquidity and diversity. Unlike actual real estate investing, these shares can be quickly and easily sold. And because you're investing in a portfolio of properties rather than a single building, it is diverse and you face less financial risk.
REIT distribute most of their taxable income to investors, the source of fund they get from is through external capital. REIT just like stock collect fund through IPO. These fund are used to buy, develop and manage real estate. (So is like a unit trust that does IPO) Income is generated through leasing , renting or selling properties. So when a REIT pay out dividend they are equally distributed among shareholder.
REITs can provide both current income and long-term appreciation.
How the REIT management and trustees are compensated will determine the REIT payout to investor. If compensation is based on the value of the REIT's assets, management is usually concentrating on investing in additional properties for capital appreciation. If the basis for determining compensation includes dividends or current earnings, the REIT's management may be motivated to increase dividend yield, possibly at the expense of long-term appreciation.
For REIT investing, it can provide a long term capital appreciation and good dividend payout. So please check on the past record of dividend payout (at least 5 yr ) but note that past performance is not a representative of future performance.Be wary of high yields. If there have been excessive capital gain distributions, this can be a sign that the income is coming from nonrecurring events and will not continue for long. Make sure the REIT is not selling off properties to provide income, because future rental income will be affected.
