What is a REIT and How Does It Work?

Emojis of building, land, documents and magnifying glass

REITs have long offered a fairly simple way to invest in real estate for beginner and seasoned investors alike. With so many online platforms opening up new avenues to earn some passive income, these companies – like addy – can often be confused with REITs.

The answer to a commonly-asked question is no, addy is not a REIT. We’ll take a look at why that’s the case as well as how REITs work along with their benefits and drawbacks.

How do I pronounce REIT?

Let’s start with this popular question so when you read this in your head, you’re feeling confident.

This acronym is pronounced  “REET” and rhymes with street or meat. In our video here, you can listen to it pronounced correctly – and also incorrectly.

What is a REIT?

REIT stands for real estate investment trust. REITs are essentially companies that manage real estate investment portfolios on your behalf. They pool money from investors, which allows them to earn money from real estate.

These portfolios may contain a wide range of properties. A REIT may focus on a single property type or consider any number of kinds, including apartment buildings, warehouses, offices, retail centers, medical facilities, and even hotels.

addy invests into individual institutional grade commercial real estate properties, which come with a high price tag and have previously been inaccessible for the average investor. Such properties include business parks, hotels, mixed-use space and apartment complexes.

REIT types

There are three main types of REITs. The most popular REIT is one that deals in equity where they own and manage real estate. Mortgage REITs, or mREITs, meanwhile, lend money to real estate owners and operate. These are less common.

Lastly, a hybrid REIT, as the name suggests, operates with both equity and mortgage.

A REIT may be publicly-traded, publicly non-traded or private.

How does a REIT make money?

REITs must pay out at least 90 % of their taxable income to shareholders. In some cases,  a REIT will pay out 100 %. However, shareholders pay the income taxes on those dividends.

REIT pros

The appeal of the REIT from an investors perspective is that the process is fairly quick and simple. The investor doesn’t acquire, manage, maintain or sell any properties – the REIT does all that. What’s more, investing in a REIT is significantly cheaper than buying the property on your own.

REITs add diversity to a portfolio and are highly liquid, which means they are easy to trade like stocks. They’re generally fairly attractive to the risk-averse as they tend to provide stable cash flow.

REIT cons

A drawback to REITs is that the investor isn’t likely to know exactly what they’re investing in. With addy, the physical properties are listed on our website, and they are places you can actually go and visit – like a smart hotel in Montreal or Starbucks in Chilliwack.

Despite relatively stable cash flow, that doesn’t mean they are immune to market risk. What’s more, low growth is often associated with REITs, and some companies may charge lofty transactions and management fees. So you may be making money, but it may not be the most efficient means to do so.

Crowdfund real estate with addy

addy aims to make investing in real estate accessible for all. addy’s team of experts identifies potential benefits, whether they are financial, societal or environmental, and enters into a deal as a limited partner. addy members can then buy shares into that deal to earn some passive income and #GetRichSlow.

Members can invest anywhere from $1 to $1,500 towards a single property. Members have to reside and be of age in one of our four unlocked provinces to invest. A large bank account or high level of financial acumen is not required to become a member and invest. We truly believe in real estate for everyone.

Every dollar you invest in  an addy property goes to that property; there are no extra fees. What’s more, there is no risk that a property won’t be fully funded as addy provides a guarantee to the General Partner on behalf of the members.

That means once you invest, you can just sit back and await potential returns. If an Owners’ Day arrives, we will all celebrate together!

Invest in crowdfunded real estate with addy:

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