Real estate investment trusts, also referred to as REITs, provide an opportunity for real estate investors to diversify their portfolio while pursuing truly passive income. Within the world of REITs, there are several subcategories, which allows investors to further diversify their portfolios while investing in some real estate types that they may not otherwise have access to. As an investor, understanding all of the options available to you is important.
Real Estate Investing
Real estate investors are often looking for ways to further diversify their portfolios. In the same way that investors who focus on publicly traded stocks don’t solely focus on one type of asset class, real estate investors often like to hold investments in varying types of real estate.
In order to qualify as a real estate investment trust, the trust has to return a minimum of 90 percent of taxable income gained from income-producing properties, asset divestiture, and other means back to shareholders in the form of annual dividends.
The majority of real estate investment trusts (REITs) trade on exchanges just like stocks, commodities, and other common financial instruments.
Real estate investment trusts (REITs) have grown in popularity as business entities in part because they are exempt from taxation at the corporate level when they meet certain distribution requirements, which also makes them exempt from double taxation paid by C-corporations.
Real estate investing is one of the most diversified investment fields there is. If you’ve made the decision to start pursuing real estate investing, you can choose between fix-and-flip properties, owning and managing your own apartment complex, renting out your current residence while downsizing to something more manageable, and any other number of options. However, for investors who are seeking truly passive income, real estate investing provides its own list of options. While real estate syndicates and crowdfunding options are plentiful, some investors prefer REITs. Understanding what REITs are and whether or not they give you the access that you need to your money can help you make a more informed decision about your own investment strategy.
Real estate investments come in many categories, including sectors like retail, office, healthcare, and hospitality, and asset class, including A, B, C, and even D. What determines a property’s class may include age, location, amenities, finishes, and rent.
Trusts are often complex, and there are many types. Therefore, it's always a good idea to have expert assistance when establishing one, especially if the trust is irrevocable. According to the Business Dictionary, the definition of a trust is "a legal entity created by the trustor through which the trustee holds the right to manage the trustor's assets or property for the benefit of the beneficiary." The main types of trusts are living, testamentary, revocable, irrevocable, funded, and unfunded. Within each of those, there are further variations.
As a subset of alternative credit, private credit can also be referred to as private lending, direct lending, or non-bank lending. It can be described as an asset class where the debt is not issued or traded on the public markets. They can be comprised of potentially higher-yielding, illiquid investment opportunities ranging from senior secured debt with income-like characteristics to distressed debt with equity-like risk and returns.