A real estate investment trust, also called REIT, is a conglomerate of people who join forces to have shared ownership of a property to earn money with it. Formed by at least 100 members, a REIT is in charge of managing the property and distributing the revenue.
However, do you know how REITs work? Learn about it with this step-by-step guide.
Choose a REIT Type
The first step to making money with a REIT is to choose the type of investment you’d like to make, as this determines the kind of company, you’d be part of. According to how each REIT manages its funds, it can be of equity, publically traded, only mortgage, private, hybrid, or public non-traded.
On the other hand, according to the property, REITs can work for offices for any type of business. They can also buy and sell mortgages to people or invest in houses and apartment buildings.
Hospitals, retirement homes, nursing facilities, and other healthcare-related buildings are part of a REIT portfolio. Freestanding retail and shopping malls work, too.
Hire a Broker
The second step is to hire a broker, as these will be the ones who’ll handle the paperwork and will help you create a neatly organized business portfolio to start your investment.
Every country has its share of REIT advisors and consulting agencies. For example, Canada has around 120 REITs for you to check before choosing the one that fits your needs.
Invest in It
After having a broker, the next step is to place the money in an investment fund. Here, you’ll have to be aware of how much money you’ll give and how much you’ll get in return.
FFO represents the money generated by the assets invested and the EPS is the revenue generated per share. FMR is the earnings percentage after managing possible risks.
Cash your Dividends
Once a year, the REIT generates a payment, which will be then split among every shareholder included in the portfolio. Although REITs work sort of like the stock market, people prefer to cash once a year instead of doing it every three months.
Reinvest the Money
Now you’ve cashed the money, it’s time to start all over again. Take 70% of your annual dividends and reinvest it on the REIT to continue making money while you enjoy the remaining 30%.
Follow this guide to the tee to see how the money starts flowing while establishing the REIT as a business will help you keep the investment wheel turning over and over again.