You must have invested your money in many different ways but did you ever consider investing in real estate investment? Real estate investment can also offer you a very good option to earn a handsome amount of passive income. Also, this investment has the potential to grow substantially in long run.
Understanding REITS
Real Estate Investment Trusts (REIT), is available for purchase by any prospective investors, which can generate a residual income without really owning any property. This can be traded like any shares available in the market.
Some of the salient features of REIT are as follows:
- Ownership and management of income-producing real estate properties is the primary function of equity REITs, which receive income from property rentals.
- Mortgage-backed securities investments, loans, and mortgages are the ways in which mortgage REITs finance owners of real estate can earn.
- The net interest margin is where they make their money.
If you would like to gain from real estate investment trusts (REITs), you can employ tactics such as creating a hybrid portfolio, which combines equity and mortgage by having real estate and mortgage loans. You may diversify your investments, maximize your profits, and lower your risks in this way.
UK REITs
UK REITs operate within the United Kingdom under government regulations. Investing in them provides convenient access to the real estate market, allowing investors to benefit from rental income and potential property appreciation.
What qualifies as a REIT?
A REIT must abide by the Internal Revenue Code (IRC) by meeting the following criteria:
- Providing revenue to shareholders and long-term ownership of income-generating real estate.
- At least 75% of its gross income must come from real estate-related sources
- Rents, interest from mortgages financing real estate, or sales of real estate should account for at least 75% of your gross income.
- Each year, distribute at least 90% of taxable income as shareholder dividends.
- Be a company that is subject to corporate taxes.
- Be overseen by a trustee or board of directors
- After the company’s founding, it must have at least 100 shareholders, and five or fewer people must own at most 50% of its shares.
REIT can be a practical choice
For those intrigued by property investment but wary of landlord responsibilities or financial constraints, property funds offer an appealing alternative.
Real Estate Investment Trusts (REITs) serve as a practical choice, resembling mutual funds by pooling capital from multiple investors for dividends from real estate, sans property management complexities.
Originating in the US in the 1960s and entering the UK market in 2007, REITs aim to provide diversified property exposure through single investments, catering to various sectors.
Listed on exchanges like London or New York Stock Exchange, REITs prioritize investor income over traditional securities like bonds or equities. Specializing in specific property sectors such as apartments or offices, they generate profits predominantly from rental income.
Tax efficiency is a notable benefit, with dividend tax allowance applicable to other investments, and tax-sheltered accounts like ISAs exempt from income tax on REIT distributions.
REITs encompass property trading companies and collective investment vehicles, offering diverse opportunities within the property market.
