The DIY Investor by Andy Bell

Author:Andy Bell [Andy Bell]
Language: eng
Format: epub
ISBN: xx
Publisher: Harriman House

Real estate investment trusts (REITs)

A real estate investment trust (REIT) is a company listed on the stock exchange that makes money by buying, selling and renting properties. A REIT, which is pronounced reet, has the same structure as an investment trust in that it is closed-ended, so does not issue new shares to match supply and demand for its shares. Instead, as with other investment trusts, the price of the shares goes up or down depending on the demand for them, in turn reflecting both the value of the underlying asset and the market’s perception of the prospects for the sector.

REITs can invest in both commercial and residential property. Until the launch of a brace of residential property OEICs in 2012, REITs had been the only way to hold residential property assets in your SIPP.

REITs originated in the USA in 1960 when they were introduced as a structure that would reduce or eliminate corporation tax in real estate investment companies. But they were not introduced in the UK until 2007, at which time nine UK property companies, including British Land, Land Securities and Liberty International, converted to REIT status.

To qualify as a REIT, the company has to distribute at least 90% of its income as dividends. That makes them very appealing to investors wanting to generate an income from the market and possibly use regular dividend payments to help pay their household bills.

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