REIT Explained: Everything You Need to Know

REIT Explained: Everything You Need to Know

Much of the crowdfunding is for a single property, allowing many investors to be a part of purchasing income producing real estate. Sometimes, these are funds, which will have many assets, allowing you to diversify your investment. A real estate investment trust (REIT) is similar to this, but often larger, and in many cases, more accessible to the public. Regulated by and registered with the SEC (Securities and Exchange Commission), an REIT generally allows individual investors, often someone who may not qualify as an investor normally, or have a large sum of money, to take advantage of the same kind of investing in real estate assets.

There are five types of real estate investment trusts (REITs):

Retail - Stores, malls, commercial businesses, etc.

Residential - Multi-Family apartment building, manufactured mobile homes, single family rentals, etc.

Healthcare - Hospitals, medical offices, nursing care, retirement homes, etc.

Office - Office building, office parks, shared work spaces, etc.

Mortgage REITs - Real estate companies like Fannie Mae, Freddie Mac, banks holding home mortgages, etc.

There are also some that are very specialized, such as equity REITs or those focusing narrowly on specific U.S real estate like just cell towers, commercial real estate property in specific sectors like the self-storage business, data centers, cold storage warehouses, and more.

These types of REITs can be both private and publicly traded REITs. There are also non-traded REITs and collections of exchange-traded funds (ETFs). Private REITs, much like crowdfunded offerings, often require being a special type of investor, or have a large sum to invest. Public REITs are often and best found on almost any investing platform, and purchased much in the same way as assets on the stock market or stock exchange. These REITs all carry different interest rates and dividend income possibilities. REIT dividends on investment funds of real estate properties is taxable income, but are often advantageous in regards to other investments like mutual funds as they often require you to pay less in capital gains tax.

Besides that, however, REITs may lack much or any tax protection. They also do not generally provide large returns when a property sells, even though both are common and popular reasons to take part in a crowdfunded offering. What they do offer is broad diversification, and a much safer (albeit more modest) return in the form of dividends. With very large REITs–aside from intermittent losses in value/share due to market conditions and world events–you can expect not to lose your investment. Even when a price is depressed, you will still likely receive dividends thanks to long term capital appreciation over time and through diversification.

If you find crowdfunding daunting, out of reach at the moment, or just too risky for such a large investment (with the potential to lose 100% of your money), consider investing in REITs. Either publicly traded or non-traded REITs will allow you to more safely engage in real estate investing. If you spend enough time researching them, following them over time, and really understanding and appreciating the value they can add to diversifying a portfolio, you may be more comfortable returning crowdfunding as the next and bolder step in real estate investing.


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