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Investment Dictionary


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Real Estate Investment Trust (REIT)

 

Real estate investment trust (REIT) is a corporate entity that invests exceptionally in to real estate sector. Usually securities of REIT’s are traded on stock exchange and every investor can easily acquire or sale them (if they are not privately held).  

 

The advantage of real estate investment trust is a reduction of corporate income tax. Not all the countries have such tax provision, and that is the reason why not in every country REITs are popular. 

 

Other important feature of the REITs that they are required to pay out for investors not less than 90% (in some countries percent may vary) of the net income in dividends.

 

Real estate investment trusts may invest in different classes of real estate: commercial, residential, recreation, agriculture. REIT can choose whether to develop real estate projects or to buy already completed ones and get profit only from the rent income. 

 

Investing in REITs is similar to investment in real estate property developing/owning companies. The main ratio for the valuation of REITs should be P/NAV (similar to P/B), which shows company’s market capitalization compared to real value of the assets of the trust.

 

 






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