Real Estate Investing Articles

A private REIT offers investors the opportunity to gain large profits in non liquid real estate investment trust.

A REIT is a solid vehicle for allowing those with limited capital to invest in real estate. REITs are essentially mutual funds that invest in the purchases, management or even financial lending for real estate investing. There are two further categories of REITs. The first is a publicly traded REIT which is available on the stock exchange and then there are private REITs that are not publicly traded. While most people have a clear idea of what a publicly traded REIT entails their understanding of a privately traded REIT may be very limited. This is why a clearer understanding of what a private REIT entails is needed so as to know whether or not this is the right type of investment for you.

A private investment, whether it is a REIT or some other type of investment, is an investment into a business for an extended period of time. The payments to the investors will be dividends over a period of time based upon either the profits or gross revenue of the investment. Here is an example of how a private REIT works: you are required to invest a minimum of $35,000 into the REIT and this will cover the “life” of the REIT which is, say, seven years. Your dividend residual income will be 3.5% gross over the course of seven years. That means the REIT must turn a profit of $1 million dollars in seven years for the investment to break even. If it earns a $3 million dollar profit in three years then you have tripled your initial investment in seven years which would be a colossal investment. However, if seven years go by and it becomes obvious this is a money losing venture…you are stuck. Since it is a private REIT you can not sell your shares in the manner of a publicly traded REIT.

This is not, however, a scam. When you invest in a business the business can not allow you to pull your money out because that would tank a business. If you promised a small child $1000 to run a lemonade stand for a year and asked for your money back after three months the lemonade stand would likely have to close shop. A private REIT follows the same logic. If you make an investment you are locked into it because providing the ability to pull out the investment would de-fund the business. This makes it an unsuitable investment for anyone that needs short term liquidity of their investment funds. But, it is also what makes a REIT a potentially huge investment as a successful private REIT could yield a huge windfall profit.

Let it be known the main benefit of a private REIT is the fact that it may end up paying a far higher interest rate than a publicly traded REIT. However, it is a far, far riskier venture. You can think of a private REIT investment as an investment in a real estate business. A private business is generally riskier than a publicly traded stock, but also offers a greater opportunity for gain.

A.M. Caro is a freelance writer from Southern California.

If you are interested in reprinting this article on your website, newsletter, forum, printed publication or other communication medium, please consult our article licensing policy.

Posted by A.M. Caro under REITs | No Comments »

REIT funds are the easiest way for investors to invest in real estate. While the real estate market has had its ups and downs over the years, real estate investing has generally remained a stable and safe proposition. It is also pretty easy to understand: you purchase property and sell it at a price higher than what you purchased or you rent the property out with the goal of the rental income eventually exceeding what you initially paid for the property.

There is, of course, a common denominator that many who wish to become involved with real estate investing may find troubling: how can they purchase property for investment purposes if they lack the funds? Yes, they could borrow but what if they are unwilling (or unable) to secure a mortgage? What about concerns the investor may have regarding paying property taxes and upkeep costs? It would seem that such individuals would be left out in the proverbial cold and unable to enter the world of real estate investing. Well, it would seem to be the case but the reality is there is another option for individuals with limited capital and it comes in the form of a real estate investment trust or, as it is commonly known, a REIT.

A REIT is similar to a mutual fund but with real estate rather than stocks. Instead of investing in a collection of different stocks the investment is in a collection of real estate properties or ventures. Not all REITS are created equal, however, and there are three common types of REITS:

• Equity REITs – Equity REITs center on investing in the management, rental and sale of real estate properties. Components of this type of fund would include property flipping ventures, apartment complexes, et al.
• Mortgage REITs – Mortgage REITs center on investing in the issuing and oversight of mortgage loans. Your investment is really in loans secured by real estate.
• Hybrid REITS – Hybrid REITs include a combination of investments in both equities and mortgages.

Any of these three types can be either publicly or privately traded. Publicly traded REITS are available on the stock exchange and can be sold at any time. Privately traded REITS are not to be found on the stock market and generally have limitations on when and if they can be sold. When you purchase a private REIT investment you are looking to earn dividend payments over a period of time with the intention that the dividends will exceed your initial investment. This is a much riskier investment than a publicly traded REIT, and will often require the investor to be accredited, but it has the potential to pay out significantly more money.

So which type of REIT is best for you? Ultimately, the answer to that is based upon your personal needs and risk level. If you are new to REIT investing you may wish to stick with publicly traded REITs because they can be sold if the investment is not panning out. Ultimately, REITs allow anyone looking to become involved with real estate investing a chance to smart small and start simply. The investment amounts are lower and the risks (in many cases) are not as high. They are also relatively easy to manage. As such, REIT investing is something anyone seriously considering a real estate investment should consider as a portion of their portfolio.

A.M. Caro is a freelance writer from Southern California.

If you are interested in reprinting this article on your website, newsletter, forum, printed publication or other communication medium, please consult our article licensing policy.

Posted by A.M. Caro under REITs | No Comments »