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  - Introduction to Investing - Starting - Five Questions to Ask Before You Invest
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  1. Home.
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  - Save and Invest - Define Your Goals.
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  Real Estate Investment Trusts (REITs)
  
  What are REITs?
  
  Realty financial investment trusts (” REITs”) allow people to invest in large-scale, income-producing genuine estate. A REIT is a business that owns and typically operates income-producing property or associated properties. These may include office complex, going shopping malls, apartments, hotels, resorts, self-storage centers, warehouses, and mortgages or loans. Unlike other property companies, a REIT does not establish realty residential or commercial properties to resell them. Instead, a REIT purchases and develops residential or commercial properties mostly to run them as part of its own investment portfolio.
  
  Why would someone buy REITs?
  
  REITs supply a method for individual investors to earn a share of the income produced through business realty ownership - without actually having to go out and buy business property.
  
  What types of REITs are there?
  
  Many REITs are registered with the SEC and are publicly traded on a stock exchange. These are known as openly traded REITs. Others may be signed up with the SEC however are not openly traded. These are called non- traded REITs (also known as non-exchange traded REITs). This is one of the most important differences among the numerous sort of REITs. Before purchasing a REIT, you need to comprehend whether or not it is openly traded, and how this might impact the benefits and risks to you.
  
  What are the advantages and risks of REITs?
  
  REITs provide a method to include property in one’s investment portfolio. Additionally, some REITs might offer greater dividend yields than some other financial investments.
  
  But there are some threats, specifically with non-exchange traded REITs. Because they do not trade on a stock exchange, non-traded REITs include unique dangers:
  
  Lack of Liquidity: Non-traded REITs are illiquid financial investments. They normally can not be offered readily on the free market. If you need to sell a property to raise cash quickly, you might not have the ability to do so with shares of a non-traded REIT. Share Value Transparency: While the market cost of an openly traded REIT is easily accessible, it can be tough to identify the value of a share of a non-traded REIT. Non-traded REITs generally do not provide a price quote of their value per share up until 18 months after their offering closes. This may be years after you have actually made your investment. As a result, for a considerable time period you might be not able to examine the value of your non-traded REIT investment and its volatility. Distributions May Be Paid from Offering Proceeds and Borrowings: Investors might be drawn in to non-traded REITs by their fairly high dividend yields compared to those of publicly traded REITs. Unlike publicly traded REITs, nevertheless, non-traded REITs regularly pay distributions in excess of their funds from operations. To do so, they might use providing proceeds and loanings. This practice, which is generally not utilized by publicly traded REITs, lowers the worth of the shares and the cash readily available to the company to acquire extra properties. Conflicts of Interest: Non-traded REITs generally have an external manager instead of their own staff members. This can result in prospective conflicts of interests with investors. For instance, the REIT might pay the external manager significant fees based on the amount of residential or commercial property acquisitions and assets under management. These charge incentives might not necessarily align with the interests of investors.
  
  How to buy and sell REITs
  
  You can invest in an openly traded REIT, which is listed on a major stock market, by buying shares through a broker. You can buy shares of a non-traded REIT through a broker that takes part in the non-traded REIT’s offering. You can also acquire shares in a REIT shared fund or REIT exchange-traded fund.
  
  Understanding fees and taxes
  
  Publicly traded REITs can be purchased through a broker. Generally, you can purchase the common stock, preferred stock, or financial obligation security of a publicly traded REIT. Brokerage charges will apply.
  
  Non-traded REITs are normally sold by a broker or financial consultant. Non-traded REITs normally have high up-front fees. Sales commissions and in advance offering fees typically total approximately 9 to 10 percent of the investment. These expenses lower the value of the financial investment by a significant amount.
  
  Special Tax Considerations
  
  Most REITS pay at least one hundred percent of their gross income to their investors. The of a REIT are accountable for paying taxes on the dividends and any capital gains they receive in connection with their investment in the REIT. Dividends paid by REITs usually are treated as common income and are not entitled to the minimized tax rates on other kinds of business dividends. Consider consulting your tax consultant before buying REITs.
  
  Avoiding fraud
  
  Watch out for anyone who tries to offer REITs that are not signed up with the SEC.
  
  You can confirm the registration of both openly traded and non-traded REITs through the SEC’s EDGAR system. You can also utilize EDGAR to review a REIT’s annual and quarterly reports in addition to any offering prospectus. For more on how to utilize EDGAR, please see Research Public Companies.
  
  You need to likewise have a look at the broker or investment adviser who suggests acquiring a REIT. To find out how to do so, please see Dealing with Brokers and Investment Advisers.
  
  Additional details
  
  SEC Investor Bulletin: Real Estate Investment Trusts (REITs)
  
  FINRA Investor Alert: Public Non-Traded REITs - Perform a Careful Review Before Investing
  
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