What is a Real Estate Investment Trust?

Real estate investment trusts, also referred to as “REITS”, are entities that invest in different types of real estate.  Typically, REITS invest in large-scale commercial real estate and development projects, such as office buildings, shopping centers, and apartment complexes.  By purchasing stock shares of a REIT, a consumer can share in any profits that are realized from the REIT’s particular real estate investments.  Congress created REITS in 1960 in order to permit regular consumers the opportunity to invest in the real estate market without huge capital investments. 

Laws and Regulations for REITs

The most common type of REIT is an equity REIT, which invests in or purchases real estate, and passes on the proceeds to its investors.  However, there are also mortgage REITS, which lend money to developers and/or invest in mortgage-backed securities, and hybrid REITS, which are simply a combination of equity and mortgage REITs, or entities that investment in both types of real estate activities in some manner.  There are strict federal tax laws that entities must follow in order to be classified as REITS.  For instance, REITS must pay out 90% of their profits to shareholder, and their investments must be at least 75% in the real estate market.  Plus, REITS that are publicly traded must comply with federal securities regulations, as monitored by the U.S. Securities and Exchange Commission. 

Essentially, REITS allow consumers to participate in gains from the nation’s real estate market, without actually purchasing real estate and being responsible for its management themselves.  Plus, if the investment is producing the type of returns that the investor anticipated, he or she can sell his REIT investments easily, just like any other type of stock share.

Legal Help with a Real Estate investment Trust

Before you invest heavily in a REIT, you should contact an attorney, a tax professional, and an investment advisor for advice about whether this sort of investment would benefit you and your ultimate financial goals.  Plus, you will need to gain information about the different types of REITs that may be available to you, and get assistance in choosing which type of REIT is best for your situation.