Real Estate Income Trusts(REIT) is either a publicly listed or a private company which holds income producing real estate. Shares are obtained in the company and dividends are paid out according to their structure. The REIT has to distribute a certain percentage to the shareholders. Every REIT will have a clause which determines how much. Typically Canadian REIT's will distribute 75%- 95%. The average return on income will differ from each REIT. Depending on what they earn, what they are invested in, etc.
The REIT was originally started in the US in the 1960's. It allowed small investors to pool their resources to gain access to larger-scale investments. They suffered for many years until the Tax Reform Act of 1986 in the US which changed the tax shelters for limited partnerships and gave REIT's an advantage. Investors flew away from private companies and went in to REIT's in a big way.
Since the inception of Canadian REIT's in 1993, there has been an increase in interest with more being listed every year on the TSX. The combination of investment on the Stock Exchange and holding assets in tangible real estate assets provide some risk/reward for the investors but still has the stability of real assets. The more common real estate in a typical REIT portfolio used to retail, hotels, and office buildings. Now there are REIT's that are completely diversified into everything from residential apartments to seniors living centers.
The fact is that real estate is a sound investment. The popularity recently has been a tremendous shift of investors toward REIT's rather than other sectors on the stock market. Investors are looking for steady yields with decent dividend payments. Real estate is the tried and true invest choice for most investors. It may not be as much of a roller coaster, but over time its track record has proven that it outperforms all other investments. The foundation for all wealth in the world is, and always will be, real estate.
Check out these REIT's and see what they have in their portfolios:
Posted by Tim Hamilton
on July 18, 2012