Usually, through the media some terms of interest that escape understanding are often heard. Such is the case of Real Estate (or also known as REIT ) whose popularity in the press, radio and television has been rising in the last two years. For all those interested in knowing all the variables surrounding this term, information of interest and its contextualization in the case of Spain will be outlined below.
What are the REIT?
The acronym REIT refers to the Anglo-Saxon term Real Estate Investment Trust, whose literal translation is Real Estate Investment Trust . In this way, this includes all those activities related to the purchase and sale of real estate assets . The term became popular during the boom in financial investment in the United States during the 1960s, and a few years later it arrived in Europe with the help of various publicly traded companies. This type of activity is also popularly called real estate .
Real Estate handles an internal nomenclature of terms that serves to distinguish or catalog their variants. Namely, the most used are: Real Estate Venture (to refer to a real estate construction company); Real Estate Development (to refer to the renewal of real estate assets); Real Estate Tax (to refer to taxes on real estate; in Spain they are known as IBI ), Real Estate Agency (to refer to a real estate company), Personal property (which refers to movable goods) and Real property (which refers to goods fixed in a specific geographical space).
What are the types of REIT?
In the current market, several types of Real Estate can be cataloged. These vary from country to country depending on the regulations that help regulate these societies (the National Association of Real Estate Investment Trusts , whose headquarters are located in Washington, regulates the rates in the region). If these are extrapolated to a universal scale, the following can be considered as their main ones:
- REIT of variable income: are the companies that are responsible for acquiring, managing and owning real estate assets to generate dividends with these in the long term (either with the sale or rental of these).
- REIT mortgage: are the companies that generate mortgage loans to real estate owners (although their margin of action also extends to the purchase of mortgages or assets backed by them). The dividends they generate are through the respective interests of this service.
- REIT hybrids: as the name implies, it integrates the two previous models and the profits of the companies are produced through both processes.
- Private REITs: whose partners are made up of private investors who, despite complying with a regulation for their composition, have less regulation regarding their activities. They are considerably popular in the United States where it is currently possible to find more than 800 of this class.
- REIT quoted: they are registered under the corresponding entities and are quoted daily in the main stock exchanges in the world. The sale and purchase of its shares is carried out with great fluidity by investors, which produces a great liquidity to the company.
- REIT not quoted: although there are fewer of these, there are also companies that do not have public exchanges in the stock market. Generally, these are sponsored by private investors who help the commercialization of the purchase and sale of their shares.
How do REITs work?
Depending on the type of Real Estate, the operation of the company will have slight variations. At a macro level, and referring to the most common type (equity and publicly traded), the company begins through an IPO ( initial public offering ) with which to raise enough funds for the management and purchase of real estate assets. It has its own board of directors which is chosen by the shareholders for decision-making within the organization. As in other cases, shareholders acquire a portion of dozens of real estate and not a specific real estate.
Most REITs specialize in only real estate markets to obtain dividends through specialized management. Similarly, many societies work for a stipulated period of years. Naturally, all these depend on the fluctuation of the economic cycles of the moment.
Advantages of investing in REIT
The benefits of investing in a REIT can be counted by tens. However, these will always be tied to the regulations that help to delimit the companies’ action plan. In general terms, and worldwide, the advantages are the following:
- REIT shares have greater liquidity than real estate assets.
- There is no minimum investment. You can buy small sums to start a market research.
- Procedures for the purchase of a good are saved.
- The purchase and sale of assets is done quickly and easily (since it operates in the stock market).
- There is a constant income of dividends (since these must distribute between 75% and 95% according to the regulations of the company).
- The portfolio is managed by professionals in the real estate market.