We’ve all worked with or at least heard of a REIT before, but what exactly are these entities, and is it a trendy activity for real estate investors in 2014?
First, a REIT is defined as a Real Estate Investment Trust. They were created back around 1960 as a real estate company that developed with a business model similar to mutual funds. REITs allow a greater opportunity for the general public to invest in income-producing real estate through the purchase of stock in the REIT. Stockholders in a REIT are paid dividends. The REIT is required to pay out at least 90 percent of its taxable income to the stockholders. One can even invest in real estate through their 401(k) plan via a REIT.
REITs can be publicly registered with the SEC, or be private, and usually run on either an equity or mortgage business model. Rental income is the major source of income for equity REITs, while interest earnest on mortgage investments typically sources income for the mortgage REITs.
The list of public REITs in the US is quite long, and includes real estate holdings in such diverse categories as hospitality/lodging, industrial and office buildings, retail shopping centers, apartment complexes, health care facilities, self storage, as well as farmland and timber, to name a few.
People who invest with REITs want good value for their money, along with stable growth, to produce a good dividend. At GRS | Title, we have seen hospitality/lodging REITs pop up all over the Southwest to take advantage of the oil and gas boom that is bringing in a lot of oil-field employees, and thereby creating a shortage of local housing. The REITs’ purchase of hotels, apartment communities and other rental properties have created jobs, added income to the economy and are drawing attention to commercial real estate activity this year. All of this is good for local economies, as well as the national financial picture. I hope my prediction for the outlook of REIT activity being good for 2014, and at least two more years, helps us all increase our investment opportunities and provides us with a diverse stream of commercial real estate business!
DISCLAIMER: This blog post contains forward-looking statements with respect to future results, performance and achievements that are subject to risk and uncertainties and reflect my personal views only. In no way do I, GRS Group, nor any of its owners, affiliates, directors, members, officers, managers, employees and/or agents, represent or guarantee the accuracy of any statements made herein. READERS SHOULD DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES, INCLUDING REITs. INVESTING IN SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK.