The acronym REIT stands for real estate investment trust. An REIT is an instrument that allows people to invest in real estate without having huge amounts of capital on hand. Members of the public can buy shares in REITs much like they can buy stock.
To start an REIT, companies must operate in accordance with several rules and regulations. They must own real estate that produces profits, and they must agree to distribute the majority of income to stockholders. There are two major types of REIT. The first earns money by running properties that produce income. For example, medical offices and restaurants are two types of commercial properties that might sell shares as REITs. There are also mortgage REITs. These REITs lend money to owners of real estate, or they extend credit to them through other securities. Mortgage-backed securities and loans are two common ways of doing this.
Currently, there are over 1,000 active REITs in the US. Many of these are private. There are, however, REITs that have met SEC requirements and trade on exchanges like the NYSE. Right now, there are about 225 of those. They represent about $1 trillion of value. REITs traded on stock exchanges like the NYSE may pay dividends on a monthly, quarterly or annual basis. Some individuals are heavily invested in REITs. Organizations like pension plans, endowments, foundations and bank trust departments are often also investors in these instruments.
REITs are popular investment because they generally provide two kinds of returns. They tend to provide high dividends compared to other investment instruments. As they relate to property, REITs also have the potential to go up in the long term, as the properties they are based around gain in value. There are several types of REITs, including publicly traded REITs, publicly traded non-listed REITs and private REITs. Listed REITs and PNLRs must file with the SEC. Private REITs do not have to meet that requirement.
In the US, REITs were developed by Congress during the 1960s. They were designed to make investments in big projects accessible to the average American. In addition to their role in the US economy, several other countries offer REITs or similar investment instruments. These include Ireland, Canada and many others.