What the F**k is REIT Investing?

Are you looking for a way to invest in real estate without all of the hassles of becoming a landlord? Then REIT investing might be just what you’re looking for. But what the f**k is REIT investing?

 Real estate can be an important addition to your investment portfolio, but it seems out of reach for many of us. We don’t even live in our own house, we rent. So how are we going to ever own real estate? There is a way!

What is are REIT Investments?

A REIT or Real Estate Investment Trust is a company that owns, manages or bankrolls income-producing real estate. The rent generated from the properties is distributed to shareholders in the form of dividends.

REIT is similar to a mutual fund and trade on the major market exchanges. It allows individual investors to pool their money and own real estate that they wouldn’t be able to afford on their own.

When you own stock in a REIT, you own a small sliver of the apartment or office buildings they own just like when you own stock in a company you own a tiny piece of that company. Due to the nature of real estate investing, REITs typically do better in low-interest rate environments and when there are higher rates it is usually a bumpy ride for the REIT market.

To qualify as a REIT, a company has to adhere to specific guidelines put in place by Congress. These guidelines include:

* Is considered a corporation according to the IRS revenue code

* Is managed by a board of directors

* Has at least 100 shareholders

* Have no more than 50% of its shares held by five or fewer individuals

* Has at least 75% of its assets in real estate, US Treasurys, or cash

* Generates at least 75% of its net income from real estate

* 95% of its income must be passive like rent

* At least 90% of its taxable income is paid to shareholders via dividends

There are two kinds of REITs.

Equity REITs

About 90% of REITs are equity REITs. Equity REITs buy, manage, build, remodel, and sell real estate. The revenues from these REITs come mainly from rental income.

The types of real estate properties include residential, retail, office, industrial, and hotels. Equity REITs often specialize in a specific property types. Residential REIT’s invest in single-family homes or apartment buildings and retail REITs invest in shopping and strip malls.

Mortgage REITs

Mortgage REITs only make up about 10% of REITs. A mortgage REIT lends money to real estate buyers or buys existing mortgages or mortgage-backed securities. The revenue from these REITs come from the interest paid on the mortgage loans.

Mortgage REITs often specialize too, either in residential or commercial mortgages.

How to start investing in REITs

The ultimate goal of any investment is to make money so how do you make money on a REIT?

REIT stocks let investors invest in real estate the same way they invest in any other industry, by purchasing stocks through a mutual fund or ETF on the stock market. When you are a shareholder in a REIT, you earn a portion of the money generated by that investment.

REITs are exempt from corporate taxes as long as they adhere to the Congressional guidelines we outlined above. Because a REIT’s income is not taxed, there is more money for shareholders. Shareholders though do have to pay capital gains taxes on the dividends at their ordinary income tax rate.

Investors can deduct 20% of REIT dividends though lowering the maximum tax rate from 39.6% to 29.6%.

REITs often provide high dividends, and those dividends can increase over time as the REIT’s properties appreciate in asset value.

eREIT

If a $3,000 minimum, the initial investment is too rich for your blood, there is a company in the REIT arena called 

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