For those who are interested in real estate investing, one option is a real estate investment trust. This is a unique option because it enables the average person to invest in real estate without having to spend the cash to buy a property on their own. This type of trust is formed when a board or organization (such as a corporation) uses money from investors to operate, purchase, and sell properties that produce income. Similar to other stocks, real estate investment trusts are purchased and sold on some of the major stock exchanges in the country, similar to other ETFs.
What Qualifies as a Real Estate Investment Trust?
In order for something to qualify as a real estate investment trust, 90 percent of all taxable profits need to be paid out in the form of distributions or dividends to those who own shares in the trust. In this manner, a real estate investment trust can avoid paying a high corporate income tax rate. Whereas a typical company has to pay taxes on its profits, a real estate investment trust gives this money back to the shareholders. This is how people investing in real estate investment trusts make money.
Who Should Use a Real Estate Investment Trust?
Similar to stocks that pay dividends, investors should consider using a real estate investment trust if they are interested in regular income; however, purchasing shares in a real estate investment trust also provide the opportunity for appreciation. This is how a real estate investment trust is similar to buying properties outright; however, investing in this type of trust requires less money. In addition, shares in a real estate investment trust are highly liquid when compared to buying properties outright. This is another major advantage of a real estate investment trust when compared to traditional investment methods.
