3.8.1.1. Real Estate Investment Trusts (REITs)
Investing in real estate can provide diversity to a portfolio, regular income, and capital appreciation over time. However, real estate can be an expensive investment, and liquidity can be limited due to fluctuating market conditions. Real estate investment trusts offer investors the opportunity to invest small amounts in real estate in the form of a liquid investment.
A real estate investment trust (REIT) is a type of trust that is modeled on a mutual fund, but is technically an equity security. The managers of a REIT buy, develop, manage, and sell a portfolio of income-producing properties. Because a REIT is a trust, it sells shares of beneficial interest. The holder of these shares receives benefits from the assets held by the trust—in this case, real estate—but does not own the actual assets. By owning a REIT, investors can take part in real estate’s potential benefits, including price appreciation and income, without the added burden of owning and managing property.
REIT shareholders receive dividends from investment income (primarily rent). They also receive capital gains distributions when properties are sold. REITs do not pass through losses to shareholders, unlike a