What if you were told that you could earn regular dividends from your investments without the hassles relating to buying, managing or even financing a property? Sounds too good to be true, right? Well, that’s precisely what a REIT allows. A REIT, or real estate investment trust, is a company that owns multiple income-earning real estate. It enables individual investors to buy shares of the REIT and add to their investment portfolio.
The History of REIT
Before we dive into its benefits, let’s take a look at how REITs came into play in the United States. REIT was a part of the Cigar Excise Tax Extension of 1960 implemented by President Eisenhower to allow for an affordable platform for the public to be able to invest in income-making real estate. According to Forbes, these are the prerequisites a company must meet to qualify as a REIT -
- Invest at least 75% of total assets in real estate.
- Derive at least 75% of its gross income from rents from real property, interest on mortgages financing real property, or real estate sales.
- Pay at least 90% of taxable income as shareholder dividends each year.
- Have a minimum of 100 shareholders.
- Have no more than 50% of its shares held by five or fewer individuals.
Benefits of REIT Investment?
The biggest USP of investing in REITs is probably the fact that they offer a lower risk for investors looking to enter the real estate market but don’t want to burden themselves with the inconvenience of managing a property. Since 90% of the taxable income goes to its shareholders, individuals investing in REITs earn high dividends.
Despite the ongoing pandemic, 2021 turned out to be a spectacular year for investors. Retail strip centers went up by 65% while the mall REIT index was up by 95%. That’s not all, the FTSE Nareit All Equity REITs index saw a return of 41.3%. Experts expect this significant improvement to be an ongoing occurrence in the real estate investment market, owing to the expected economic growth, higher incomes and extended spending/purchasing power across the country.
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