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.
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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.
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.
| Impact | Description |
| Accessibility | REITs 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 market | REITs provide liquidity to the real estate market. This makes it easier for businesses and individuals to buy and sell real estate. |
| Diversification | REITs 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 Name | Ticker Symbol | Yield |
| Brookfield India Real Estate Trust | BREIT | 5.2% |
| Embassy Office Parks REIT | EMPS | 4.7% |
| Mindspace Business Parks REIT | MBPSL | 5.8% |
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