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There are plenty of ways that a person can invest into the real estate business. The rental industry remains strong and is a viable opportunity for most new investors. A person who does not have enough cash to buy a rental home could invest in an REIT (pronounced "reet") or real estate investment trust. These assets are traded like stocks and can be useful as a way to get started in real estate. A purchase of a trust can include investments as a whole in homes, commercial buildings and other types of profitable properties.
3 Main Types of REIT Investments
This type of real estate investment is one of the most popular because it allows full and partial ownership of actual property. Investing into equity from the purchase of a home is the goal of this form of a real estate investment trust. Homes are purchased through acquisitions and multiple owners can contribute capital to the equity REIT.
Banks are one of the largest holders of mortgage REIT products in the United States. The interest that is earned from the underwriting of a mortgage is how profits are earned from this type of property investment. Both large and small investors can contribute funds to purchase a mortgage on the open market. Single mortgages or thousands can be pooled together and purchased by a managed investment trust.
This form of investing combines both equity and mortgage products into one investment. Some stock trading companies that allow real estate investment trust sales offer this type of 21st century investment product. A person investing into a larger trust can choose to invest all money in one area or spread the money around into mortgages or equity REIT products. These products function like a mutual fund and can grown an annual return.
Advantages to Buying a Real Estate Investment Trust
Buying homes at the full market value is not the way that most buyers make a purchase. Mortgages are obtained and payments are typically spread out over a period of up to 30 years. Buying an REIT instead of a property does have benefits.
The first benefit is the guaranteed profit payouts of 90 percent. Every REIT is required under IRS tax guidelines to payout a minimum of 90 percent in order to qualify as a corporate REIT.
The second benefit is the relatively small investment made into a trust. Like a mutual fund, an REIT can have hundreds or thousands of different investors each contributing small or large dollar amounts. A person testing the waters in real estate can make a small investment into a real estate trust to examine the results.
The third benefit is tax reductions or exceptions that a person could quality for when owning this investment type. Because 90 percent of income is paid out each year, the standard tax rate is usually applied to each investor. An investor in a REIT does not pay the standard corporate tax unless her or she owns a corporation setup for real estate investing.