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Keller Williams Realty Swm
Ryan Arnt, Keller Williams Realty SwmPhone: (269) 470-6666
Email: [email protected]

Investment Basics: What is an REIT?

by Ryan Arnt 04/19/2020

Image by OpenClipart-Vectors from Pixabay

A Real Estate Investment Trust (REIT) is a specialty corporate entity that owns and operates real estate to generate a profit. Several types exist. An Equity REIT typically generates income by leasing and managing income-producing property. The type of property makes no difference -- commercial, multi-family residential, retail, office, industrial, or a mix of specialty developments, including medical facilities and retirement communities.

Shares are sold to individual investors, who then receive a steady income based on operating earnings. According to some estimates, at least 225 publicly-traded REITs exist in the United States, all traded on a national securities exchange and regulated by the SEC. Public, non-traded REITs also exist, and are SEC-regulated. Private real estate investment trusts are not registered and not publicly-traded, offered instead only to a select group of investors. Picking the right type for individual investment goals can involve extensive homework.

Internal Revenue Service regulations are strictly applied. They stipulate that an REIT must be a taxable corporation, and derive at least 75% of its income from real estate sales, rents or mortgage interest. The corporation must then return at least 90% of taxable income to shareholders on an annual basis. There are additional requirements, in addition to holding at least 75% of assets in real estate, U.S. Treasury bonds or cash.

An REIT can provide important liquidity to an investment portfolio, with a typically steady annual income stream, although there may be little capital appreciation. The yield from different types of REIT can vary substantially. Equity REITs own and manage real property, while Mortgage REITs deal in financing products and mortgage-backed securities; both can be affected by the market, interest rates, the economy and consumer confidence. In addition, dividends paid to investors are treated as regular income by the IRS.

As with any form of investing, it's important to investigate the pros and cons, not only of REITs in a general sense, but the performance over time of a specific investment trust. On the plus side are the ability to diversify an investment portfolio, and the relatively secure potential of a steady return and low risk in tandem with the transparency that comes from regulatory oversight.

On the minus side are the low potential for actual growth in value, the REIT's reinvestment and expansion potential which is capped at 10% annually, and the unknown effect of real estate market volatility over the term of the investment. High management and transaction fees can also affect the financial return.

Investing in an REIT, however, is a viable way to gain knowledge and establish a presence in real estate, especially in currently hot segments of the market.  Especially for a beginner, REIT investment can represent a path to future growth and security, leading to additional real estate options over the long term.

About the Author
Author

Ryan Arnt

I have provided award-winning service to many clients over the past 25 years. Few other REALTORS are as trusted as I am. My clients trust my advice, and they know that I always look out for their best long-term interests. You can expect, and you will receive personal service that is second to none. When you hire me as your Agent you work with me and only me. I will answer your calls and respond to your text messages. I promise not to hand you off to another member of "My team" like others do. When you hire Ryan, you get Ryan.

I have called Southwest Michigan home for 40 years. My mother's family ran a local locksmith service, and my father served as the Chief Investigator for the County's Prosecutor's office for many years. I love all that this area offers, and I enjoy serving the buyers and sellers who are moving in or out of Southwest Michigan.

My wife and I have two children, and we would not want to raise them anywhere else. Between the award-winning schools and the plethora of youth activities offered in Southwest Michigan, it's a great place to call home. We enjoy spending time with friends at the beach, boating, golfing, hunting, skiing "Up North," and fishing.

We give back generously to the community that has been so good to us. Currently, I serve on the Lakeshore Public Schools Foundation Board (LEF), as Past President of the St. Joe Kickers Sports Club, and as a Rotarian in the Stevensville-Lakeshore Rotary Club. We donate throughout the year to various local organizations, schools, and youth sports groups.

I want to put my experience and knowledge to work for you. Having sold more than 500 properties while earning the trust and respect of my fellow REALTORS, who voted me the "REALTOR of the Year," I am confident I can earn your trust as well.

Looking to buy, sell, or invest in real estate? Please allow me the opportunity to serve you. I promise you will not be disappointed.

Ryan Arnt

Real Estate Broker/Company Owner

Keller Williams of Southwest Michigan

You can reach me anytime, call or text 269.470.6666, or email me at [email protected].

When you need a REALTOR, Rely on Ryan!