A real estate investment trust, also known as an REIT, is a type of investment opportunity. More specifically, shares in REITs are considered a type of real estate security. Typically, an REIT is a corporation or a trust that invests in different types of real estate, such as malls, shopping centers, apartment buildings, and professional buildings. An REIT may also invest in mortgages secured by real estate. Generally speaking, there are three different kinds of REITs:

• equity REITs -- an equity REIT derives its earnings from rents on the properties it owns and from capital gains on the properties to the extent such gains are recognizable from sales of the properties;
  
• mortgage REITs -- a mortgage REIT lends money to owners or developers and derives its earnings from interest collected on such loans; and
  
• hybrid REITs -- a hybrid REIT is a combination of an equity REIT and a mortgage REIT.

An REIT must meet certain specific criteria in order to qualify under the Internal Revenue Code (IRC). The IRC specifies what percentage of taxable income an REIT must pay to its shareholders. Furthermore, the IRC specifies what percentage of the assets of an REIT must be represented by real estate and what percentage of the income of an REIT must be generated from investments in or mortgages on real property.

How Does an Investor Benefit by Purchasing Shares in an REIT?

Certainly, an investor could purchase a hotel or an office building and derive some of the benefits of an REIT. However, most investors do not have the funds available to make such significant purchases. Some of the benefits of owning shares in an REIT are as follows:

• an investor can begin with a small investment, and there is usually no minimum purchase required to acquire shares in an REIT;
  
• the shares of an REIT are easily transferable, as opposed to actual ownership of real property; and
  
• an investor may be able to acquire diverse interests in real estate,depending on the holdings of the REIT itself.

How Can an Investor Learn More About an REIT?

As most REITs are traded on national exchanges, information regarding performance, earnings, and management is easily ascertainable. Numerous research tools exist on the Internet. Further information may be found in the financial section of the newspaper.

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