Real Estate Investment Trust (REIT)

Investing in real estate has many advantages and disadvantages. The advantages are that property values often appreciate and that real estate provides diversification to a securities portfolio, since usually real estate and the stock market are not correlated.

The disadvantages include the fact that real estate takes a lot of capital, and it isn't liquid. It often takes months or even years to get a property sold, or sold for a decent price. So, the lack of liquidity keeps many investors from buying real estate, especially commercial real estate (shopping malls, skyscrapers, factories, etc.).

This is where publicly traded REITs come in. A Real Estate Investment Trust (REIT) is a company that owns a portfolio of properties and sells units/shares to investors. Investors can buy into REITs that own apartment buildings, office buildings, shopping centers, hotels, convention centers, self-storage units, timber you name it. This way they can participate in real estate without having to be wealthy, and they can sell their shares as easily as selling shares of other publicly traded stock.

The type of REIT just described is called an Equity REIT. A different type of REIT provides financing for real estate projects as opposed to just buying up and managing properties.

These are called Mortgage REITs, and they provide financing as well as buy up mortgages and mortgage-backed securities. Some REITs do a little of both, and are called, fittingly, Hybrid REITs.


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