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  - Introduction to Investing - Getting Started - Five Questions to Ask Before You Invest
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  1. Home.
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  Real Estate Investment Trusts (REITs)
  
  What are REITs?
  
  Realty investment trusts (" REITs") allow people to invest in large-scale, income-producing property. A REIT is a company that owns and usually runs income-producing genuine estate or related properties. These may consist of office complex, going shopping malls, houses, hotels, resorts, self-storage centers, warehouses, and mortgages or loans. Unlike other property companies, a REIT does not establish property residential or commercial properties to resell them. Instead, a REIT buys and establishes residential or commercial properties primarily to operate them as part of its own financial investment portfolio.
  
  Why would somebody buy REITs?
  
  REITs offer a method for specific financiers to earn a share of the earnings produced through industrial realty ownership - without actually having to go out and buy industrial property.
  
  What types of REITs are there?
  
  Many REITs are registered with the SEC and are publicly traded on a stock market. These are known as publicly traded REITs. Others may be signed up with the SEC but are not openly traded. These are called non- traded REITs (also known as non-exchange traded REITs). This is among the most important differences among the various kinds of REITs. Before buying a REIT, you need to understand whether or not it is publicly traded, and how this might impact the advantages and risks to you.
  
  What are the advantages and threats of REITs?
  
  REITs use a way to consist of property in one's financial investment portfolio. Additionally, some REITs may provide greater dividend yields than some other financial investments.
  
  But there are some risks, particularly with non-exchange traded REITs. Because they do not trade on a stock exchange, non-traded REITs include unique threats:
  
  Lack of Liquidity: Non-traded REITs are illiquid investments. They normally can not be offered easily on the free market. If you need to offer an asset to raise money quickly, you may not be able to do so with shares of a non-traded REIT. Share Value Transparency: While the market price of a publicly traded REIT is easily available, it can be challenging to identify the worth of a share of a non-traded REIT. Non-traded REITs normally do not offer an estimate of their value per share until 18 months after their offering closes. This may be years after you have actually made your financial investment. As an outcome, for a substantial period you may be not able to evaluate the value of your non-traded REIT financial investment and its volatility. Distributions May Be Paid from Offering Proceeds and Borrowings: Investors might be attracted to non-traded REITs by their fairly high dividend yields compared to those of publicly traded REITs. Unlike openly traded REITs, however, non-traded REITs frequently pay circulations in excess of their funds from operations. To do so, they might use offering profits and borrowings. This practice, which is normally not utilized by publicly traded REITs, lowers the value of the shares and the money offered to the company to purchase additional properties. Conflicts of Interest: Non-traded REITs typically have an external supervisor rather of their own employees. This can lead to prospective disputes of interests with investors. For instance, the REIT may pay the external manager considerable fees based upon the amount of residential or commercial property acquisitions and possessions under management. These charge rewards may not necessarily align with the interests of shareholders.
  
  How to buy and sell REITs
  
  You can invest in a publicly traded REIT, which is listed on a significant stock exchange, by purchasing shares through a broker. You can purchase shares of a non-traded REIT through a broker that takes part in the non-traded REIT's offering. You can also buy shares in a REIT mutual fund or REIT exchange-traded fund.
  
  Understanding fees and taxes
  
  Publicly traded REITs can be bought through a broker. Generally, you can purchase the common stock, preferred stock, or debt security of an openly traded REIT. Brokerage costs will use.
  
  Non-traded REITs are normally sold by a broker or monetary adviser. Non-traded REITs typically have high up-front costs. Sales commissions and in advance offering charges normally total around 9 to 10 percent of the financial investment. These expenses lower the worth of the investment by a considerable amount.
  
  Special Tax Considerations
  
  Most REITS pay out at least one hundred percent of their gross income to their investors. The investors of a REIT are accountable for paying taxes on the dividends and any capital gains they receive in connection with their financial investment in the REIT. Dividends paid by REITs generally are treated as common income and are not entitled to the decreased tax rates on other types of business dividends. Consider consulting your tax adviser before buying REITs.
  
  Avoiding fraud
  
  Watch out for any individual who tries to offer REITs that are not registered with the SEC.
  
  You can validate the registration of both publicly traded and non-traded REITs through the SEC's EDGAR system. You can also utilize EDGAR to evaluate a REIT's annual and quarterly reports along with any offering prospectus. For more on how to use EDGAR, please go to Research Public Companies.
  
  You must also have a look at the broker or financial investment adviser who advises purchasing a REIT. To learn how to do so, please check out Dealing with Brokers and Investment Advisers.
  
  Additional details
  
  SEC Investor Bulletin: Real Estate Investment Trusts (REITs)
  
  FINRA Investor Alert: Public Non-Traded REITs - Perform a Careful Review Before Investing
  
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