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Real Estate Investment Trust

A REAL ESTATE INVESTMENT TRUST (REIT) is a tax designation for a corporation investing in real estate reducing or eliminating corporate income taxes. Historically, REIT was created by the US Congress in 1960 and has seen a dramatic rise since 1992. Now the USA is said to have the largest and most well organized Real estate investment market in the whole world. Moreover a REIT is an entity that invests in immoveable property and operates in conjunction with Real Estate Investment Management Company. Much like mutual funds, an investor can purchase units in the REIT for the specific schemes it promotes. An additional advantage of investing in a REIT is that it must distribute 90% of its annual net income after tax as dividend. Further a scheme floated by a REIT is permitted to acquire units in an uncompleted building or one in the course of substantial redevelopment or refurbishment up to the extent of 20% of the total net asset value of the scheme at the time of acquisition. This provision gives the investor a benefit of raking profits when the value of the property escalates after it is developed. REITs have been successfully run in countries such as the UK, USA, Canada, Germany, Hong Kong and Singapore.

Like every other company, REIT can be publicly or privately held where publicly held REIT is listed on public stock exchanges. REIT, which is publicly traded, is required to file reports with the Securities and Exchange Commission (SEC) in the American system. The key statistics to observe in case of REIT are Net Asset Value (NAV), Adjusted Funds From Operations (AFFO) and Cash at Disposal (CAD).

REIT invests in different kinds of real estate including different real estate related assets like shopping malls, office buildings and hotels. The most common type of investment is equity real estate investment where the trust invests in or owns the real estate and collects rents for the investors. Mortgage REIT invests money in financial instruments secured by mortgages on real estate and Hybrid REIT is a combination of equity and mortgage real estate investment trusts. Besides these types, REIT\'s may specialize by geographical factors or industry sectors, or a mixture of both. The top three real state sectors in which REIT\'s are focused are offices or industrial property, residences and retail stores.

REIT offers many advantages to people who do not have sufficient money to invest in real estate but desires to own a piece of property. Real estate investment trusts can offer you regular dividends when the trust uses your money to buy real estate and you may also gain when the share price of the company appreciates.

The main benefit of a real estate investment trust is that they don\'t pay corporate taxes as long as a minimum of 90% of all the income is divided between the investors.
Additionally, in the last six years, REIT\'s have become a more interesting security than traditional stock, since they have provided a higher return over investment (ROI) than the stock market. For this reason they have become one of the favorite long term choices of investors for leveraging their portfolio of securities.

The main risk is the possibility that the REIT doesn\'t give the dividends you expected. That\'s why it is very important to check the record of the chosen REIT. It will give you a lot of information regarding the quality of their work and the professionalism of their employees.

In India, a proposal to venture into Real Estate investments was initiated by SEBI, which recently released its draft regulations on Real Estate Investment Trusts under the SEBI Act, 1992. India is yet to allow to setting up of REIT and the Associated Chambers of Commerce and Industry (ASSOCHAM) has presently mooted the idea with the government to expand the property market and provide benefits to real estate investors. It is a new investment product which will make it easier for the average investor to invest his or her hard-earned money in real estate.

So, if you want to invest in real state but don\'t want to go through the long and tortuous process of buying a property and managing it, then the solution is investing in REITs. You will not have to worry about the maintenance of the property; your only worry will be the dividends.

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