Real Estate Investment Trust (REIT) |
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A real estate investment trust (REIT) is a company that buys, develops, manages, and sells real estate properties and assets. REITs allow shareholders to invest in a professionally-managed portfolio of real estate properties. These properties might include shopping malls, apartment buildings, self-storage facilities, retirement homes, or any number of other real-estate assets. REITs qualify as "pass-through entities," meaning that they are able to distribute the majority of their income / cash flows to investors without taxation at the corporate level (providing that certain conditions are met). This is how REITs are able to distribute generally larger-than-average dividends to shareholders. As pass-through entities, a REIT's business activities are generally restricted to generation of property rental income. Another advantage of REIT investment are REITs' liquidity (a shareholder's ease of transferring her REIT holdings into cash), as compared to outright real estate holdings, which are definitely NOT easy to liquidate. The main reason for the "liquid" nature of REIT investments is that like stocks, REIT shares are primarily traded on major exchanges. It is much easier to buy and sell REIT shares than to buy and sell actual properties in private markets. |
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