Real Estate Investment Trusts (reit)
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Real Estate Investment Trusts or better known as REITs, are one of the bunch of financial innovations that we decided to focus on. Real Estate Investment Trusts are companies that own or finance income producing real estate. They deliver all types of investors with regular means of income; they typically pay out all of their taxable income as dividends to their shareholders. REITs are structured or modeled after mutual funds; one of the many traits of this financial innovation is that most REITS are traded on major stock exchanges such as the New York Stock Exchange.
REITs have been around for almost more than 50 years in the United States. The creation of REITs was established in the 1960’s. The U.S. Congress, with the purpose of giving income producing real estate accessible to average investors, gave legal permission to form REITs in the 60’s as an amendment to the Cigar Excise Tax Extension of 1960. That year was the year where The National Association of Real Estate Investment Funds was founded; this is a professional group that marketed REITs, they are now known as the National Association of Real Estate Investment Trusts. The first REIT was Continental Mortgage Investors; they are listed on the NYSE. This very first REIT was the pioneer of many more REITs to be established. Soon enough major investors became intrigued in the research on the value of REITs. Mortgage based REITs accounted for most of the growth of Real Estate Investment Trusts in the 1970s and helped fuel a housing boom. The bubble eventually bursts after the oil crisis of 1973 and the recession that followed.
There are two types of Real Estate Investment Trusts; there are those that are publicly traded and those that are non-publicly traded. Publicly traded REITs must comply with the financial reporting and governance requirements under the Sarbanes Oxley Act, this requires them to also file with the Securities and Exchange Commission. As far as liquidity is concerned, because public REITs are traded on the major exchanges, investors can readily get in and out of these stocks effortlessly at a relatively cheap price. While private REITs are not subject to the daily oscillations of the marketplace, the advantages of being able to enter and exit the marketplace in a public REIT as well as the potential for its stock to appreciate appear to outweigh the non-fluctuations of an investment in a private REIT.
Non-Publicly Traded REITs are unique. Non-traded (private) REITs are a direct investment that uses the capital it raises from retail investors to purchase and manage income-producing properties, or in some case as previously mentioned, mortgage properties. A REITs manager seeks to produce a steady stream of revenue or income that it pays out as distributions or dividends to its investors, who are shareholders of the REIT. The shares of a non-publicly traded REIT are not listed on any exchange making the shares illiquid. Investors that are interested in this should plan to hold these non-traded securities through the estimated lifespan of the REIT until a planned liquidity