An investment trust is an organization that invests in real estate or other income producing assets (for example, dividend paying stocks or commercial property). The investors’ money is pooled together to purchase these investments, and the organization performs its investing responsibilities for individual accounts.
Investment trusts are very common these days. There are many different types of investment trusts, with some being more attractive than others depending on what you want from your investment portfolio. A few things to look out for when choosing which trust to invest in include how well the company distributes dividends, the type of asset it invests in, and whether or not there is a service that offers automatic reinvestments.
This article will talk about one specific type of investment trust – an investment trust that sells properties as part of their business model. These trusts were first introduced back in 1989, and have become increasingly popular since then. What makes this type of trust special is that they do not just sell individual buildings, but instead buy large tracts of land and turn them into revenue generating businesses. This effectively gives the investor multiple income streams and hedges against risk, making investment trusts with this feature a good choice if risk management is something that sets you apart from other individuals.
There are two main reasons why investing in REITs can be a smart option. First, because they spread out the risks associated with buying individual buildings, investment trusts with this feature are less risky than buying a single building directly.
How a REIT is different than a stock
A real estate investment trust (REIT) is not like buying a share of Netflix or Google, where you get one big package that gives you access to all their products.
A REIT is actually an asset class — a specific type of company that invests in residential or commercial property. They’re most well-known for investing in large buildings or apartment complexes.
By owning a piece of this real estate, your investment fund gets back what it pays for the building (the down payment and mortgage), along with some profit from rents. The rest comes directly from the tenants who live in these properties.
Potential risks of investing in a REIT
One risk that investors should be aware of when considering to invest in real estate investment trusts (REITS) is their shelf life. Most large national REITs have an average holding period of five years before they are either sold, closed down or both.
The reason for this is because most major shareholders want to see strong revenue growth from the company they invested in so they wait for it to happen before buying more shares themselves.
This doesn’t always work in your favour as a shareholder though. If a bad manager makes poor decisions then the income may not grow as quickly which can hurt investor returns.
Another risk with REITs is political changes at the country level. For example, if a nation defaults on its debt then its banks will need to sell off some assets, including real estate loans. The bank might choose to sell these loans back to the original lender who then puts them into another firm instead of keeping them as a customer.
If a lot of these selling takes place then the cost of borrowing money could rise – potentially hurting investment return potential.
By owning a share portfolio consisting mostly of REIT stocks you reduce your risk of losing money due to being distracted by other issues. However, you also reduce your chance of profit since many dividends are paid out every year and thus reduced over time.
Overall, while there is some risk involved in investing in REITs, just remember that all investments carry risk.
Buying shares of a REIT
The second way to invest in real estate is through investing in an individual company called a real estate investment trust (REIT). A REIT is similar to a regular stock market company, except they focus on owning and developing large tracts of land or buildings.
Some examples of well-known REITS include Equity Residential, Brookfield Property Partners, GGP Inc., and StockLand Properties. These companies own apartment complexes, office buildings, commercial property, and/or rural acreage all across Canada and the United States.
The difference between buying a share in a REIT directly and purchasing a unit in one of their properties is how the shares are held and distributed. With a direct purchase you receive dividends at the same time as shareholders, while with a dividend reinvestment plan (DRIP) investors get special coupons for future purchases.
This article will talk more about DRIPs but first let’s look at some reasons why investing in a REIT is a smart choice.
Selling REITs shares
As mentioned earlier, investing in real estate investment trusts (or “REITS”) is one of the best ways to invest in real estate. This article discussed why they are such strong investments and how to sell their stock.
Selling stocks for an income can be done through various online brokers or via phone or live chat representatives. The easiest way to do this is through your own personal savings!
A great way to start investing is by selling some of your existing REIT holdings. By buying dividend paying companies, you get paid back in dividends with each share you buy. These dividends go directly into your bank account making it easy to begin investing.
There are many different types of REITs, so which ones make the most sense depends on your individual needs and preferences.
Buying a house with REIT money
As mentioned before, real estate investment trusts (or “REITS”) are companies that invest in income-producing properties. These firms can sell their shares to you — called units — or to another investor.
You buy a share of the company just like owning a piece of a car would be – you pay for it and own part of the business. The cost is usually determined by how many units you purchase and what price each unit is sold for.
The price per unit varies as well depending on whether the firm is investing in higher priced or lower priced property. Some even offer monthly dividends, which are similar to dividend paying stocks.
These monthly dividends are not always reinvested into more expensive assets, however. Some may go towards general corporate expenditures such as marketing, shareholder meetings, etc.
Interest rates and REITs
Rising interest rates are putting pressure on real estate investment trusts (REITS) market capitalization. As mentioned earlier, these companies must have very large revenues to be considered “strong” investments because they require high income yields for investors.
Conversely, if a company is not as strong an investment due to poor dividend growth or even declines in dividends, this will not make their stock more attractive.
There are many types of REITs, but one of the most popular ones is the affordable residential rental property investor. These properties typically rent well above what the owner can afford to pay per square foot, which makes it easy money for the landlord.
However, with rising mortgage costs and increasing competition in the rental housing market, there are some landlords that cannot keep up their margins.
Reporting requirements
As mentioned before, there are several key documents that must be included in the sale of an IRI or PIRA. These include reports concerning the business, shareholder information, and financial statements.
These documents should be available to anyone who is interested in investing in the company’t name. The seller is usually required by law to provide these documents as well as details about their whereabouts.
Sellers are also obligated by regulation to notify certain government agencies when selling off part of the business. This includes notifying the Securities and Exchange Commission (SEC), state securities regulators, and tax authorities such as the IRS.
The sellers may also have legal obligations towards past shareholders which they need to disclose. All this information must be made public so that investors can make an informed choice about buying shares in the company.
Corporate governance
The sale of an IREX stock will go through several stages, including solicitation, negotiations, underwriting, and closing. These steps occur within a specific timeline dependent upon the timing of each stage as well as the individual sellers’ commitments.
During the sales process, shareholders must agree to sell their shares to you as the buyer. This is called “solicitation.” After agreeing to be sold, shareholders typically have two weeks to find buyers for their shareholdings.
After finding interested purchasers, the next step is negotiation with both the shareholder and the purchaser. During these conversations, investors look at how much money they can get for their shares, and what rights are given to them as owners.
Once all parties agree on the price and terms, then the transaction can move forward. A seller’s broker or attorney usually represents them during this process, while your broker or lawyer helps you evaluate whether the investment makes sense for you.
