What are Real Estate Investment Trust (REIT)?

A real estate investment trust (REIT) is a company that owns, operates, or finances income-producing real estate. REITs are required to pay out at least 90% of their taxable income to shareholders in the form of dividends. This makes them a popular investment for income-seeking investors.


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Why invest in Real Estate Investment Trusts (REITs)?

There are several reasons why people invest in REITs. Here are a few of the most common reasons

  • The dividends they pay out are typically high, which makes them a good way to generate passive income.
  • REITs can help to diversify a portfolio.
  • With very small amount they can invest in real estate which also gives them growth potential.

How Does Real Estate Investment Trust Work?

When an investor wants to invest in REITs, it works in the following steps:

REITs can be classified into three categories:

  • Equity REITs: These REITs own and operate real estate properties, such as office buildings, shopping malls, and apartment complexes.
  • Mortgage REITs: These REITs invest in real estate mortgages, such as commercial mortgages and residential mortgages.
  • Hybrid REITs: These REITs own and operate real estate properties and invest in real estate mortgages.

REITs are traded on major stock exchanges, just like stocks. This makes them a liquid investment, meaning that they can be easily bought and sold.    

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What Impact Does REITs Have?

REITs are a popular investment for a variety of reasons. They offer income, diversification, liquidity, and growth potential. Which brings a positive impact on the economy.

AccessibilityREITs make real estate more accessible to a wider range of investors. This is because they allow people to invest in real estate without having to buy and manage individual properties.
Liquidity to the real estate marketREITs provide liquidity to the real estate market. This makes it easier for businesses and individuals to buy and sell real estate.
DiversificationREITs can help to diversify a portfolio by providing exposure to the real estate market. This can help to reduce risk by minimizing the correlation between REITs and other asset classes, such as stocks and bonds.

Let’s see an example:

REIT NameTicker SymbolYield
Brookfield India Real Estate TrustBREIT5.2%
Embassy Office Parks REITEMPS4.7%
Mindspace Business Parks REITMBPSL5.8%

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