An investment trust is an organization that holds, or invests in, real estate. The investing company may own one type of property, or it may hold all types of properties. They typically manage the properties on behalf of individual investors, with shareholders getting shares in the business.
Some investment trusts are considered “growth” stocks because they focus more on acquiring new pieces of real estate than buying and holding mature assets. These firms can take some time to work, but their owners reap big dividends as the property grows over years.
Other growth stock companies buy up lots of little businesses or agricultural land, developing them into major income sources for the firm. Some invest in technology or manufacturing facilities, creating wealth through increased production and sale of products.
There are many different kinds of investment trusts, with various strategies and levels of risk. A lot depends on what kind of real estate each fund owns and how much money they have to spend on acquisitions.
History of real estate investment trusts
Historically, large companies have invested in residential or commercial property to retain an income stream or use the rents they receive from the properties to finance other business ventures. Businesses that want access to lower cost capital can invest in such REITs so their shareholders do not need to bear the risk of putting money into loans or buying stock in individual businesses.
By having shares in a real estate investment trust (REIT), investors get exposure to several different types of real estate including apartment buildings, office towers, shopping centers, and more. This diversification helps reduce risk because if one type of property is losing value, another may be increasing in price.
There are two main reasons why most people don’t own stocks. One is investing in stocks is difficult for the average person. The second is many people don’t believe very much of the hype about how well stocks will perform in the future.
But owning a real estate investment company that invests in real estate is easy to understand and does not require too much additional research beyond looking up what kind of investments the company makes. Because these firms are required by law to only spend money on producing income through rent, their performance reports are way easier to read than those of some technology or car companies, for example.
Another benefit of investing in real estate investment companies is they tend to keep relatively stable dividends, with occasional big increases due to rising rents or major acquisitions.
How a REIT is different from a real estate investment company
A real estate investment trust (REIT) is not like most other companies that invest in or own property. They are typically operated as separate corporations with limited liability, which means you cannot hold them responsible for debts and losses.
A REIT must be registered with the Securities and Exchange Commission (SEC), however. This means that investors can research their holdings just like any other corporation, and audit reports are available to the public.
Also, unlike many large real estate firms, a REIT is not run by professional managers hired outside of the organization. Ownership remains in the hands of those who put up initial capital to start the business.
The people at the top make sure there are adequate funds to cover operating costs and pay back shareholders, but day-to-day operations are handled by professionals.
This more passive form of investing was invented over 60 years ago and has become one of the biggest success stories of our time.
Potential benefits of investing in a REIT
One of the most popular ways to invest is through real estate investment trusts (or REITS for short). A REIT is an investor trust that invests in or owns large tracts of land or buildings, and then rents those properties out for income.
The REIT uses this income to pay dividends to shareholders, or it can use the money to make capital improvements to the property or launch new investments.
Some examples of well-known REITs are Equity Residential, Brookfield Asset Management, GGP Investments, and H&R Realty. There are many other smaller REITs as well.
REITs offer several advantages over individual stocks because they exist to produce stable returns. Stable means up and down, but never flat.
This consistency makes them good long term investments because you know what to expect from them.
Potential disadvantages of investing in a REIT
The disadvantage of owning a real estate investment trust (REIT) is that it can be difficult to remain objective when marketing the company’s shares.
As I mentioned before, most large institutional investors such as pension funds and wealth management companies own shares of many different REITs.
This means that they have an incentive to promote the sharing activity of their stock in order to win more business for themselves.
Because these shareholders are paid according to how much share trading takes place, then higher levels of investor activity mean that they get paid better!
There is also significant profit in being known by other market participants, so even if you don’t necessarily want to buy a share right now, researching ahead of time will help you determine whether this stock is a good or bad bet.
Examples of real estate investment trusts
Most large corporations have some sort of real estate investing division that invests in, develops, or owns commercial property or investments. Some use it for their headquarters, some to expand into, and others to run as separate business units.
Some companies even combine these two functions into one. For example, Chase Bank runs its “Chase Property Management” arm off an independent company that handles all of the other things investors need to know about banking while they focus on doing what they do best- lending money!
By having this dedicated real estate investing unit, corporate America is taking full advantage of the power of real estate. They’re investing in land, buildings, and more via smart strategies that can compound over time.
Real estate investment trusts (REITs) were created to take advantage of another important asset class – equity. Like most people, not everyone has a lot of extra cash to invest, but anyone can own stock through an individual retirement account (IRA), a brokerage firm account, or through workplace savings programs.
So how does owning REIT stock work? The easiest way to understand REITs is to think of them like stocks. Just because something is called a ‘stock’ doesn’t make it any better or worse than anything else; buying a car with no radio is still a good idea.
Questions to ask a potential REIT investor
One of the biggest questions investors have about real estate investment trusts (REITS) is what kind are best for you. There are many types of REITs, some focused on investing in residential or commercial property, others that focus on one type of business such as hospitals or airports, and still other types that invest in anything from technology companies to energy projects.
The difference between each type of REIT depends mostly on what sort of return they are looking to achieve and how much risk they are willing to take on. Some will be more risky than others, so it is important to know which ones are considered safe investments.
As with any investment, there is always the chance of losing money. But by investing in certain REITs, you can earn higher returns because of their specific investment strategies. This way you mitigate your losses, making it less devastating if things go wrong.
Some of the factors determining whether an individual REIT is suitable for you are: their track record, how well they manage their portfolio, and how transparent they are about where their funds come from.
