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Finance

What is a Real Estate Investment Trust?

By Luke Arthur
Updated Feb 20, 2024
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A real estate investment trust is a type of investment that holds a large amount of real estate in a portfolio for investors. Investors can purchase shares of the real estate investment trust and become partial owners of a portfolio of real estate. This type of investment allows investors to get involved in real estate with a very small initial investment. It is also easily traded and allows individuals who know little about real estate to get involved in the market.

A real estate investment trust is also sometimes referred to as an REIT. A real estate investment trust is managed by a professional team of real estate experts. The real estate experts take the funds that are provided by investors and use them to purchase many different real estate properties. A real estate investment trust could utilize many different types of real estate strategies, such as investing in commercial properties or multifamily housing units. Shares of this type of investment are traded on exchanges just like stocks.

One of the advantages of this type of investment is that investors can get involved in the real estate market for a fraction of the price of buying a single property. Many investors realize the potential of the real estate market but lack the funds to get involved on an individual basis. By purchasing shares of an REIT, these investors can get involved in the market even if they only have a small amount of money to invest.

This type of investment is very easy to get involved with. In order to buy or sell shares, investors will simply need a brokerage account. At that point, investors can buy or sell shares as if they were trading stocks.

Another big advantage of a real estate investment trust is that it allows individuals with little knowledge of the real estate market to profit from real estate transactions. The real estate market can be very complicated and novice investors may not have enough knowledge to be profitable. With this type of investment option, investors can put their money into the trust and allow a real estate expert to take care of all of the details for them. Most of the time, these trusts are managed by individuals who have many years of experience in the real estate industry. This allows the average investor to leverage the knowledge of real estate experts and benefit from it.

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Discussion Comments

By GreenWeaver — On May 31, 2011

@Mutsy -I know what you mean but real estate prices are so low right now, that it you are looking to get into the market now is the time.

Many homes are selling for a third to one half of their selling price during the real estate bubble and I think that many places are really undervalued right now. I think that homes in Florida will always be attractive because of the nice weather and the low cost of living so investing in a home in Florida may not be a bad idea.

For example, Miami has a lot of international buyers so although this was one of the hardest hit markets, it will turn around because I lot a people really love this city. I rather invest in a property than any real estate investment trust company.

By mutsy — On May 29, 2011

@Latte31 - I always wondered how REIT investments worked. I think that owning investments in real estate can be lucrative over time, but

You have to screen tenants and hope that they pay you on time and don’t destroy your property. You don’t have to worry about this with a REIT. With a REIT, you simply collect your dividend payment and that is it.

It is not as sexy as owning an investment property, but for some people that don’t have the time or want to commit to working with tenants it is still a good option.

By latte31 — On May 27, 2011

I used to have a REIT and the advantages are that they do offer higher yields than other mutual funds because they have to put back 90% of the profits back into the REIT fund.

The only downside is with the real estate market taking a downturn, I wonder how profitable it would be to hold a REIT because a lot of the earnings come from rentals.

I really prefer to hold a physical property. I love real estate and the nice thing is that I can live in my investment property in the summer and rent it out in the winter.

I can also make money when the property appreciates in value if I ever choose to sell it. That is the nice thing about owning a piece of real estate. For me, REIT investments are not as good as they used to be and I prefer my investment in real estate to be tangible.

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