Nate Ritchison, CFP® defines what a REIT (Real Estate Investment Trust) is. Find out what the benefits of REITS are and what the difference between an equity REIT and a mortgage REIT is.
“Hi, I’m Nate Ritchison, CERTIFIED FINANCIAL PLANNER™ and Registered Investment Advisor with Pure Financial Advisors, and this is Question of the Week. This week’s question is: What is a REIT? A REIT is an acronym that stands for Real Estate Investment Trust. A REIT invests in real estate or mortgage backed securities, collect interest or income and pass it on to shareholders. In some sense, a REIT is similar to how a mutual fund works. They allow the investor to have diversified securities within one particular asset class like real estate.
There are things like equity REITs and some like mortgage REITs. An equity REIT would be an investment that would invest primarily in apartment complexes or hospitals, student housing, those types of things. The income that is received in the form of rent is then passed on to the shareholders and the owners of the REIT. Whereas in a mortgage REIT, the interest that’s being accumulated or received is then passed on to the shareholders in the form of dividends.
REITs can either be traded on the exchange like the New York Stock Exchange, they can be public but not traded on the Exchange or they can be private entirely. Those are the three different ways REITs can be bought and sold.
Finally, a REIT’s primary objective is to pool together investors so they have the most diversified pool when it comes to investing in real estate. So you can buy many different properties or many different locations of those properties in your investment portfolio.
This has been Nate Ritchison with Pure Financial Advisors, and this has been the Question of the Week.”