REITs - Real Estate Investment Trusts
REITs are entities that invest in different types of real estate related assets. These properties could include hotels, office complexes, shopping centers, etc. REITs are primarily divided into three different types:
- Mortgage REITs- Invest in financial instruments secured by mortgages on real estate or lend money to owners and/or developers.
- Equity REITs- This type consists of investing in, and in some cases fully owning, property for the purpose of making money for investors from the rent these buildings or complexes collect.
- Hybrid REITs- any combination of the aforementioned.
Individual REITs can be differentiated by specialization. REITs may center their investments geographically (by region, state, or metropolitan area), or in asset types (such as retail properties, industrial facilities, office buildings, apartments or healthcare facilities). Certain REITs can have a broader focus, investing in a assortment of types of property and mortgage assets across a wider range of locations.
In the United States, REITs pay little or no federal income tax, but they are subject to various requirements set forth in the Internal Revenue Code. One of these stipulations details these companies must distribute at least 90% of the taxable income in the form of dividends to their shareholders. This may limit the REITs ability to retain earnings and generate growth from internal sources. This and other restrictions imposed by the IRC, limit REITs' appeal to investors who are growth oriented.
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