Understanding the Concept of REIT and How Does it Work?


Understanding the Concept of REIT and How Does it Work?

Real Estate Investment Trust (REIT) paves the way for general public to invest in the real estate sector without actually having to buy expensive real estate. So, you must be thinking what is REIT and how does it work? REIT is not much different from mutual funds, except that instead of investing in equity or debt, they invest in real estate assets. You have to either purchase property or be involved in property development. They make money in two ways: capital appreciation and rental income, which is then passed on to investors as dividends.

However, most of us are still unaware of what is REIT and how does it work? In this post, we have decided to decipher it for our readers.

What is REIT?

REIT is an abbreviation of Real Estate Investment Trust. REIT is a fund that develops, purchases and sells income-generating real estate projects. REIT (Real Estate Investment Trust) allows individuals to invest in large-scale properties in the same manner as they invest in other industries through shares. It works on mutual funds and provides every investor with regular income, diversification and long-term capital appreciation.

Under REIT, the management collects money from individuals and investing institutions to buy real estate projects. Entire project is further divided into "Units" and each financial contributor becomes a unit holder, who further earns a share of the income produced through the real estate development without actually having to buy property.

How does it work?

Any real estate company or Trustee purchases and enlists a real estate project to invite investors only after learning about the property valuation. Trustee divides the development into units. After that it invites Individuals and financial investing institutions to make investment in REIT schemes, who will be benefited in terms of income produced through the said real estate development. The income earned through the development is distributed among dividends.

Now all of you know about REIT (Real Estate Investment Trust) concept and how does it work? Let's have a look at the benefits of REIT investment for us

Benefits of REIT

  • The risk attached with investing in one property is diluted, when you invest in a number of properties through REIT.
  • As an investor, you may not be able to afford a direct investment in a large asset such as a shopping mall or residential apartment project. By investing through a REIT, you get to invest in these large assets in a smaller chunk.
  • It is easier to buy and sell through REIT than to buy and sell a whole property unit. REIT is listed on stock exchange, so you can trade units in REIT throughout the trading day.
  • You can access information on REIT prices and trade REIT units throughout the trading day.

Now you almost have enough information about REIT, you can decide your investment plan accordingly. Do share your investment plans with us.

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