Understanding Real Estate Investment Trust

A Real Estate Investment Trust (REIT) is an enterprise involve in owning and operating income-generating real estates including lodging facilities like resorts and hotels, apartment communities, health care facilities like rehabilitation centers and nursing homes, warehouses, shopping centers, regional malls, office properties, industrial parks and even natural resources. Some REITs concentrate its real estate investments on specific locations within US boundaries while bigger ones venture to overseas markets.

As business investor or even starting real estate investor, you might find REIT very attractive because it is handled by experienced real estate investing professionals and offers a lucrative opportunity to partner in a portfolio of properties instead of investing in one single property.

Created by Congress in 1960, REITs aim to help small investors gain access to large scale real estate investments by buying equity. Similar with other individuals or groups who own stocks in a corporation, REIT holders also profit from any income derived from commercial real estate ownership in proportion to his or her shares. Majority of REIT shares are traded feely in leading stock exchange markets.

The law also mandates REITs to share 90% of its taxable income to all shareholders every year and most states do not require them to pay state income taxes. Similar with other businesses, tax losses by REITs are not passed to investors.

To date, more than 190 REITs with combined total assets of $400 billion are registered with United State's Security and Exchange Commission and majority are trading in New York Stock Exchange.

Not all real estate investment groups are classified as REIT. There are numerous requirements to comply with in order to become an REIT. These are the following:

- Must have at least 100 shareholders. Additionally, the 50% of the real estate investment firm must not belong to five or fewer real estate investors.

- At least 75% of total assets are invested in real estate market

- Must pay 90% of its taxable income as shareholder dividends

- The company must be a taxable corporation managed by trustees or Board of Directors

- 75% of gross income must come from interests on real property mortgages or rents from real estate investment properties.

Operating like a publicly listed corporation, the Board of Directors or trustees have the power to decide on acquisition of investment. They are empowered by shareholders, through election, to make such pivotal decisions for the good of the organization. Most board directors are renowned figures of the real estate investing market and other esteemed business communities.

The target market of REIT shares includes organizations who are keenly eyeing moderate long-term growth while earning high level of current income. These are companies connected with mutual funds, pension funds, bank trust departments, insurance companies, foundations, and endowment funds.

Some real estate investors are merely looking for alternatives to diversify their investment portfolios to help achieve their investment goals. It is even easier to buy REIT shares for these are mostly available on the open market with minimum purchase requirements.

Considering its advantages and leverage, owning shares with real estate investment trust is indeed one of most preferred real estate investments options.