What Is A REIT (Real Estate Investment Trust)
A real estate investment , or REIT is a organization that has ownership , operates or financially supports income-producing real estate. For any firm to meet qualifications as a REIT, it must meet specific guidelines which are regulated by the Federal Government . REIT’s usually trades often on major exchanges just like other securities and are able to provide investment with a liquid stake in real estate.
How To Invest In REIT’S
Anyone is allowed to invest in REIT’s (Real Estate Investment Trust’s ) by utilizing many different methods such as purchasing shares of publicly traded REIT stocks, mutual funds and exchange traded funds.
REITS are also playing an significant role in defined benefit and defined contribution portfolios
Any individual investor may purchase shares in a REIT which is also found on all the major stock exchanges similar to any other stock offering. Investors may also be allowed to purchase shares in a REIT sponsored mutual fund or exchange traded fund (ETF) It is a known fact that more than 80 million Americans now have investments in REITS connected thru retirement savings and other financial variables.
Appropriate REIT investments can be made thru a qualified broker, investment advisor or financial planner. Any one of these professionals can easily analyze a potential investor’s financial objectives.
Investors also have the option of setting up investments in either public non listed REITS or private REITS
How is the value of REIT shares usually calculated?
Having similarities to stocks which are publicly traded, REIT shares are actively priced by market activity during the course of a normal trading day. To emphasize the investment worthiness of REIT shares , professionals usually consider these key factors:
Potential growth in earnings per share;
Potential total return from the stock offering, estimated from the anticipated price change and the existing dividend yield;
Current dividend yields related to other yield investments ( such as bonds, utility stocks and other high income investments
Dividend payout ratios as a percent of REIT FPO
Quality of management and organizational structure &
Underlying real estate asset values or mortgages and other assets
How does a REIT calculate earnings and have the capability to pay dividends?
REITS utilize net income as outlined under the General Accepted Accounting Principles (GAAP) as their principal operating performance calculator. In addition REITS also utilize funds from (FPO) a measurement of money generated, as an additional indication of their overall operating performance.
NAREIT which acts an worldwide voice for REITS defines FPO as net income excluding gains or losses from sales of most property and depreciation of property, due to real estate usually appreciating in value rather than depreciating. Securities experts also use a calculation named Adjusted FPO (AFFO) which changes FPO for rental raises and certain capital expenses.