Real Estate Investment Trust (REIT)

Real Estate Investment Trust (REIT) is a tax designation for publicly or privately held corporations investing in real estate. It also provides a way for regular investors to make investments in properties. These investments can be made on commercial real estate, apartments, homes or any other type of property. REITs receive special tax considerations, offering investors a high return and a highly liquid method of investing in real estate. REIT is a type of security which is traded like a stock on the major exchanges and it invests in real estate directly. One can buy, sell and trade shares of REITs just like any other stock. The investments are made through properties or mortgages, and only those properties which produce income and pass on the profit to investors, are considered. Another benefit of REIT is that it has the potential to yield a high income with a much smaller investment.

Types of REIT

Following are the different types of Real Estate Investment Trust.

• Equity REIT: Equity REIT basically invests in properties and own them. They perform the acquisition, building, renovation and sale of real estate and are also responsible for the equity or value of the same.
• Mortgage REIT: Mortgage REIT deals in the investment and ownership of property mortgages. It is a non-taxed entity that invests in a variety of mortgage products, like, lending, buying and selling mortgage backed securities. Investors invest in REIT because of their high dividend yields. The prime source of income for mortgage REIT is from the interest that they earn on mortgage loans.
• Hybrid REIT: As the name suggests, it is a combination of equity REIT and mortgage REIT. Hybrid REIT invests in both properties and mortgages.

The buying and selling of REIT is similar to that of a normal stock. However, as a REIT deals with real estate instead of widgets, there is a basic difference in terms of finance expansion and measure profitability. The conventional P/E (price-to-earnings) ratios may or may not apply to a REIT and investors usually look for trustworthy and competent management.

Working of REIT

A mortgage REIT makes money by borrowing on a short term basis and lending on a long term basis, the reason for this being, the lower interest rates in short term, as compared to those in long term. When the difference between these interest rates is very high, a mortgage REIT can make huge profits. In case the difference is small or negative, they face problems. The basic motto of a REIT is to get some benefit for the risk they take, in lending on a longer term. Unlike mortgage REIT, an equity REIT owns or has an equity interest in rental real estate. It makes money by considering the market scenario, rather than making loans secured by real estate collateral. The major elements of a REIT, which are considered by investors, are its Net Asset Value (NAV), Adjusted Funds From Operations (AFFO) and Cash Available for Distribution (CAD).

Washington Real Estate Investment Trust

Washington Real Estate Investment Trust (WRIT) is a self-administered equity real estate investment trust which deals in purchase and sale of properties in the Washington metro region. It offers a range of office buildings, industrial properties, residential buildings and retail centers and operates in five business segments of sale and purchase. These segments basically deal with the kind of property offered by WRIT.

Like any other form of investment, REITs also come along with with their own share of risk. It is important to invest prudently in a REIT, as it is a complicated investment product. One should consult financial professionals and experts in the field, before making investments.