What is a Real Estate Investment Trust (REIT)?
Real estate investment trusts (REITs) are not typically something you’ll hear about unless you’re deep into the world of investment opportunities. They’re special companies that operate as trusts and oversee real estate investments. A company acting as a trust may sound strange, but this is how many large trusts work.
When someone with a lot of valuable property and capital places a significant amount of it in a trust, a group of people is continuously paid by the trust to maintain it. Sometimes they work to invest it to grow the contents of the account. A famous example of this would be the executors of the Tolkien Estate, a trust created to protect and maintain the property of the famous author J. R. R. Tolkien, writer of the Lord of the Rings book series.
Currently, Tolkien’s two main executors–Baillie Tolkien and Michael George Tolkien–and a team of lawyers and investors control and care for his estate. This is similar to how many REITs operate when put in simpler terms, but how it starts and benefits a regular investor is a different matter.
Who Creates a Real Estate Investment Trust?
A group of investors can come together or be broached by professionals to invest in real estate investment trusts. Regardless of whose idea it is, investors put money into a trust that purchases and operates real estate properties on their behalf. These investors can be wealthy individuals, investment firms, or large corporations.
What Are the Benefits of Investing With REITs?
REITs are perfect for when stock market investors want regular incomes. These allow investors to invest in nonresidential investments when they wouldn’t normally be able to. Real estate properties such as office buildings, mall complexes, and storefronts are usually impossible for individual investors to purchase themselves. With a REIT, they can.
What makes these trusts even more appealing to investors is that a REIT is what can be considered a highly liquid venture. These are exchange-traded trusts, where investors put liquid cash flow in and get liquid cash flow out. They don’t see real estate agents or title transfer companies if they don’t want to. To be safe, we would recommend that you have an attorney to oversee the title transfers and the contracts to protect your investments.
Investors also only have to be involved as much as they want, which is another reason to invest in a REIT. It operates like a business, meaning others run the day-to-day and only communicate with the investors when they need to put funding in or take the profit out. Though, again, we recommend that investors at least have their attorneys watching over any REITs they’re a part of.
What Can You Invest in With a REIT?
There are many different properties that can be purchased, managed, and sold by a REIT that should interest real estate investors. These include properties that would otherwise be near impossible for an individual investor to invest in themselves due to the time and money needed to make and keep them operational.
- Apartment complexes
- Healthcare facilities
- Data centers
- Fiber cables
- Office buildings
- Cell towers
- Energy pipelines
- Retail centers
Typically, a REIT will focus on one type of real estate, not all of these examples at once. Before you enter into any REITs, you want to make sure there’s a clear goal. It’s unlikely that there are many real estate managers who know how to manage apartment complexes, healthcare facilities, and cell towers. It’s not out of the realm of possibility that someone could manage retail centers and warehouses considering the connection between their businesses. They require business and legal research to make sure that your investment in a REIT is a safe one.
Contact Tressler & Associates Before Entering Any Real Estate Investment Trusts
A real estate investment trust is a good way to grow your portfolio and your capital, especially if you don’t have the time or energy to manage real estate properties yourself. But they aren’t bulletproof, so you need to make sure they’re with qualified investors and managers.
Our Tennessee real estate law firm has experience with writing and reviewing contracts and our estate planning attorney is well-versed in creating trusts. Additionally, our sister company, Tressler Title, is an experienced title search provider.
For any aspect of a real estate investment trust, contact Tressler & Associates today.
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