Investing 101: Is a REIT a Good Investment?

List: Posted: 05/03/11

The investment world is full of acronyms and phrases that make it difficult to understand.  There are all sorts of financial investing programs for people to choose from, each with different rules and regulations.  Let's look at the real estate investment trust, or REIT, and how it works.

Essentially, a REIT is a tax designation given to corporations that invest in real estate.  The REIT works by eliminating corporate income taxes on these real estate investments. 

 

It works in much the same way that mutual funds do for stock investing, and corporations are required to distribute a minimum of 90% of their income to investors.  A REIT can be classified as equity, a mortgage, or both.

A REIT can be an excellent investment, but given the current economy, they are certainly somewhat riskier than before.  The profit from a REIT is based on the profit from the sale or equity of real estate either here or abroad, and with an economic crisis both in the United States and around the globe, share values of the average REIT have certainly decreased. 

 

For some investors, these decreases have resulted in shares losing up to seventy percent of their value.

No investment is perfect, and none is guaranteed to be always on top.  The REIT really is an excellent investment option when the right holding company is chosen, and when the market improves, there is little doubt that they will become popular once again.

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