Buying Investment Property with a REIT.
The investment options of most people largely vary. There are so many instruments in the market that it sometimes becomes confusing for the investors to find out which one is suitable for them. While stocks have always been the biggest priority, bonds have been safer for those who want to park their money for the long term. Options are providing leverage to speculators while mutual funds are the easiest options for investors. However, one thing that is often missed is the REIT or real estate investment Trust.
In the simplest terms, a REIT is like a company that will collect money from investors through an initial public offering. The rules of the game are pretty much similar, with investors receiving prospectuses, the investments being reported and regulated the same way. However, the only major difference is that the REIT instead of investing all its money into one company, use the money that has been collected to invest in pools of real estate that are further managed to generate income through renting, leasing and sale of property and the profits are distributed to the holder of the REIT on regular basis.
The major advantage of holding a REIT compared to the stock is that while stock only gives you a share to the profitability of the company, an investor who invests in right has a direct claim to the investment property held by the REIT. Along with this the REIT holder gets regular income along with the safety net of having assets, whose value can appreciate and depreciate with the market but are a potential source of income for a long time. In short, it is as good as investing real estate with a long term perspective except that it is managed by people who are better aware of the market.
The biggest advantage of a REIT property is the fact that because it is a large pool collected by investors, there is also diversification of funds. Therefore investment is not stuck in one asset, rather it is distributed over quite a few assets which is always considered safer. Besides, if you have to do similar diversification of your real estate portfolio, you will have to invest much more time and money without liquidity that simply investing in a REIT. Another major benefit is the requirement to distribute almost 90% of their taxable income to shareholders, which literally ensures continuous source of income.
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