Types of Real Estate Investment Trust (Further Explained)

Types of Real Estate Investment Trust (Further Explained)

The types of Real Estate Investment Trusts are:

Equity REITs: Equity REITs are REITs that own the properties they invest in (and are responsible for their assests). They mostly generate income from the rents from the estates.

Mortgage REITs: Mortgage REITs don't own the properties they invest in. Instead, they loan money (for mortgages) to owners of real estate, or they purchase existing mortgages. They mostly generate income from the interest they earn from the mortgage loan.

Hybrid REITs: Hybrid REITs, as the name implies, use both strategies of equity REITs and mortgage REITs. They generate income from both rents and mortgage interests.

Investing in REITs:
The people (public) can invest in REITs by purchasing their shares on an open exchange. Alternatively, they can invest in a mutual fund that specializes in "public real estate".

General Introduction of Real Estate Investment Trust (REIT)

Real Estate Investment Trust (or REIT) is a tax designation for a real state company which distributes all or most of its income (90% +) in forms of dividends. REITs offer common shares to the public (and thus distribute some income to the public). REITs are exempt from corporate income taxation. They manage groups of income producing properties, as their primary business. They are of three types viz. equity, mortgage or hybrid.

The qualifications of becoming a "Real Estate Investment Trust" are:

1. REITs will have to be established as a corporation "REIT-AG".

2. 75% (or more) of its assets has to be invested in real-estate.

3. 75% (or more) of the REIT's gross revenues must be real-estate related.

4. 90% (or more) of the REIT's taxable income has to be distributed to its shareholders through dividends.

5. Shareholders will have to pay individual income tax on the dividends.