Written by - What Are REITs? Real Estate Investment Trusts (REITs) are companies that own, operate, or finance income-producing real estate. They allow investors to pool their money to invest in a diversified portfolio of real estate assets.
- How Do REITs Work?
- Income Distribution: REITs are required to distribute at least 90% of their taxable income to shareholders as dividends, making them an attractive source of passive income.
- Liquid Investment: Unlike direct real estate investments, REITs trade on major stock exchanges, offering liquidity and ease of access.
- Types of REITs:
- Equity REITs: These REITs invest in and own real estate properties, earning income through rent and property appreciation.
- Mortgage REITs: These REITs invest in real estate loans, earning income through interest payments on mortgages.
- Hybrid REITs: A combination of equity and mortgage REITs, offering diversified exposure to both property ownership and mortgage lending.
- Benefits of REITs:
- Diversification: REITs provide exposure to real estate, an asset class that is often uncorrelated with stocks and bonds.
- Income Generation: REITs often offer attractive dividend yields, making them ideal for income-focused investors.
- Lower Capital Requirements: REITs allow investors to gain exposure to real estate without the large upfront capital typically required for direct property investments.
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