How does a company qualify for REITs?

Real estate investment trusts(REITs) are the trusts that the companies own; these finance income-producing real estate across a range of property sectors. Real estate companies need to meet the requirements to qualify as REITs. REITs trade on the stock exchange and offer numerous benefits to investors on a long-term and short-term basis.

REIT

Like mutual funds, REITs are the investment that makes it possible for every day to get benefits from various sources like valuable real estate and the opportunity to access dividend-based income and total returns.

REITs are the source through which anyone wanting to invest in a portfolio of real estate assets is the same as any other investment in any other industry. The stakeholders of a REIT earn a share of the income produced.

TYPES OF REITs

1. EQUITY

Equity is most famous among investors. It is concerned with operating and managing income-generating commercial properties. It is the most common source of income.

1. MORTGAGE

This is involved with lending money to proprietors and extending the mortgage facilities. REITs tend to acquire mortgage-backed securities. Income can be generated on the REITs in the form of interest accrued on the money to lend the properties.

1. PRIVATE REITs

A real estate investment trust works as a private placement for only a selective list of investors. These are not traded on the national securities exchange or registered with the SEBI.

1. PUBLICALLY NON-TRADED RSEBI

These are the non-listed REITs; these are generally registered with SEBI. They are less liquid and more stable as they are not subjected to market fluctuations. They are not listed on the national stock exchange.

QUALIFICATION NEED FOR THE COMPANY RAISING THE REITs

A company needs to satisfy a few things to qualify the REIT: A company must have 100 shareholders. It is to be managed by the trustees or a board of directors. A minimum of 75% of gross income must be mortgage interest, and 10% of the total value should be invested in real estate under construction properties. The company should have an asset of ₹500 crores. 80% of the investment must be made in properties, only those capable of making revenues. The 90% of the total value of the company's shares must be divided among the investors in the form of dividends.

REIT retirement portfolio has various ways to invest, which have proved beneficial. An individual can diversify their asset classes by managing them personally. Investors tend to invest more with the rising value of REIT, though investors tend to earn substantial returns. Investors need to check the old record that proves beneficial if they invest in REIT. REIT can be purchased through shares. Mutual fund options that invest in REITs Are also an option. One should check REIT's activities and performance to have a future benefit. REITs are beneficial to factor in REIT's growth, which increases the value of dividends before investing to get maximum returns.

REIT

PROS AND CONS OF REITs

REITs help to earn steady dividend income and capital appreciation. REITs provide an opportunity for investors to diversify their real estate. Most REITs are on the stock exchange and are easier to buy and sell, which adds to the liquidity aspect. Making investments in REITs allows an individual to adjust the risks and helps generate a steady increase in cash flow.

It does not benefit from tax, which means the dividends earned from REIT companies are subjected to taxation. The investors wear the risk appetite in return generating capacity of this investment. The capital appreciation growth is quite low in the case of REITs because 90% of the earnings are to be invested again, and the remaining 10% is to be invested in their venture.

Conclusion:

REITs are investment trusts that companies own to have some benefit of income generation. These can be in the form of equity, mortgage, private real estate investment trust, publically non-traded real estate investment trust, and more.

One should check REIT's activities and performance to have a future benefit. REITs are beneficial to factor in REIT's growth, which increases the value of dividends before investing to get maximum returns. REITs own and manage the High value of real estate properties. Big institutions like insurance companies, bank trust departments, pension funds, and endowments can be suitably invested in these financial tools for future benefit and development.