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What is an REIT and How Does it Make Money?

If you’ve been investigating investment opportunities (or you’ve just been listening to the news lately), you’ve probably heard of an REIT. But what exactly is it? REIT stands for Real Estate Investment Trusts. REITs are companies that own commercial real estate that produces income. These REITs have to meet a number of requirements in order to qualify as one and they are highly regulated and most REITs are traded on the major stock exchanges.

Simply, you can think of REITs as the real estate version of mutual funds. Investors in these funds can “own” part of the real estate and therefore benefit from dividend-based income. In this way, investors can reap the benefits of owning real estate without actually having to go out and purchase and then manage the property. There are REITs in a wide variety of sectors, including industrial, office, retail, lodging, residential, health care and more. Most REITs specialize in one certain sector, but some may invest across multiple sectors.

So how could an REIT work for you? REITs normally pay high dividends and your investment can appreciate over the long haul. These typically won’t be high moneymakers like some stocks can be, but they also are much lower risk. Most of them make money by investing in real estate that can then be rented, so the rent is paid by tenants is then returned to the investor in the form of dividends. Typically, REITs have provided investors with consistent long-term performance, a steady income even when the stock market has had its ups and downs and the ability to liquidate quickly if the need arises. All of these factors combine to make REITs be an attractive option to add to an investment portfolio!

If you are interested in pursuing an REIT, be sure to speak with a trusted financial planner, investor and/or tax advisor to make sure it is the right choice for you and your investment goals! It is estimated that over 80 million Americans currently invest in REITs, making them a great long-term or short-term investment choice for many people!

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