Real Estate Investment Trusts (reit)

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event that is designed to return investment capital and potential capital appreciation to the shareholders actually occurs. The fact that these REITs cannot be readily traded carries a liquidity premium that typically provides a higher yield than the yield on publicly traded REITs with similar portfolios. For example, private REITs have historically yielded dividends of seven to eight percent, compared with only five to six percent for the public REITs who deal with the volatility of the market.

A non-traded REIT has certain characteristics that include: The estimated lifespan of private REITs being between seven to ten years before ending in a liquidity event. They are required to register with the SEC, make quarterly, and annual reports to the regulator just like any other public company. Non-traded REIT shares are only available to investors who meet suitability standards established by the state where they live in. These investors measure success by total return, which includes the cash distributions during the lifespan of the program plus any appreciation of investment principal as a result of the liquidity event.

A non-traded REIT similarly to a public one, also goes through its own life cycle. A private REIT goes through four distinct phases in its life cycle: Capital raising, acquisitions, asset management or the incubation period, and disposition or liquidity. These non-traded real estate investment trusts can be classified into three broad categories: Equity, mortgage, and hybrid REITs. An Equity REIT purchases direct interests in real property and is classified by the type/types of property a fund owns and the geographic regions on which it focuses. A Mortgage REIT holds mortgages or other similar indirect interests in real property but does not own actual equity interest in the property. A Hybrid REIT owns both equity and mortgage interests in a single fund.

Many of the benefits on REITs include: Diversification which increases return and reduces risk, reliable income returns, inflation protection which includes natural protection against inflation, performance which delivers growth, tactical asset allocation and tax transparency. A primary residence allows homeowners to save on rent and contribute in any appreciation in local real estate costs. But it is illiquid and undiversified and does not offer any income. Wealthy individuals could buy investment properties and rent them out to produce income; however without a very large asset base, it is difficult to get diversified exposure to the real estate market through direct ownership. Equity real estate investment trusts help solve this problem. While most REITs hold a myriad of properties, many focus on a slim section of the real estate market, such as shopping malls like new port mall in Jersey City, hotels and resorts like the Marriott, or health-care facilities including hospitals. In order to further improve diversification, investors can hold a portfolio of REITs through a low-cost fund, such as the Vanguard REIT ETF, iShares U.S. Real Estate ETF, and Schwab