What Are REITs?

Real estate investment trusts (REITs) are investments that own properties. They must distribute 90% of their taxable earnings. They provide a steady income without personal management and are easy to diversify. REITs also don’t decrease in value as quickly as stocks in declining markets. REITs can increase in value substantially. Since REITs must distribute 90% of their earnings, they can provide steady income for investors. Read on to learn about the benefits of investing in REITs.

Investing in a REIT

Investing in a REIT is one way to diversify your portfolio. Many investors stick to stocks and bonds or mutual funds, but may be overlooking real estate. Many investors think they need a large amount of money to get into real estate, or that it is difficult to get into with little experience. However, there are several advantages of investing in a REIT. They have low investment minimums, don’t require loans, and are managed by professionals who understand the ins and outs of real estate.

Investment strategies

There are several different investment strategies for REITs. For example, one strategy is to invest in cities with strong economies. While prime office space in Detroit is nice, you’d be better off investing in an average building in Washington, D.C. Another strategy is to invest in mortgages, which represent about 10% of REITs’ total investment. The government-sponsored enterprises Freddie Mac and Fannie Mae are good places to start, but they’re not the only ones to look at.

Tax advantages

One of the major tax advantages of REITs is the ability to avoid double taxation. Because the tax structure is different for REITs than for other investment vehicles, the investor can receive tax breaks from both sides of the investment. These advantages are especially important because REITs are not subject to taxation at the entity level, unlike other investment vehicles. However, investors should still know how to calculate their REIT tax obligations. Knowing what they can and cannot deduct can help investors decide whether REITs are right for them.


The liquidity of REITs’ stocks is positively related to their funding liquidity, but the relationship varies depending on the economic regime in which the company operates. If REITs’ debt to equity ratio increases, their market liquidity will likely decrease. In contrast, smaller REITs will have lower liquidity risks than non-REITs. Furthermore, REITs typically have higher dividend frequency than non-REITs. However, there are some drawbacks to REITs’ market liquidity.


Real estate investment trusts (REITs) are investments, and you can invest in one if you think you can handle the risk. However, you should know what you’re getting into, as REITs come with their own set of risks. Investors should consider all of these risks when deciding whether to invest in a REIT. Rising interest rates can cause REITs to do badly – investors tend to move to safer income plays, like U.S. treasuries, which are government-guaranteed and pay fixed rates. Another risk factor is rising rents and occupancy rates, and REITs don’t fare well when interest rates rise.

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