Real Estate Investment Trust, or REIT for short, is an investment trust (fund) for real estate management.
Real estate investment trusts are companies that own or finance income-producing properties in the real estate sector.
These real estate companies must meet a number of requirements to qualify as REITs. Most REITs trade on the world’s major stock exchanges and offer numerous benefits to investors.
REITs provide an investment opportunity, like mutual funds, which allows everyone to benefit from the real estate market. It is an opportunity for investors to access dividend-based income but also to help local communities grow, prosper, and develop.
REITs were created in the United States after President Dwight D. Eisenhower signed Act 86-779, sometimes called the “Cigar Excise Tax Extension,” in 1960. The law was passed to allow all investors to invest in various types of real estate that generate income through purchasing and selling liquid securities.
The first REIT was the American Realty Trust founded by Thomas J. Broyhill, a cousin of US Congressman Joel Broyhill from Virginia in 1961, who advocated the creation of this type of fund and a manner of investing in the real estate market.
Today, in 2022, these types of real estate investment funds have been established in at least 38 countries worldwide. The comprehensive index for REITs and the global real estate market is the FTSE EPRA/Nareit Global Real Estate Index Series, jointly created in October 2001 by index provider FTSE Group, Nareit, and the European Public Real Estate Association (EPRA).
As of January 29, 2021, the global index included 490 real estate companies listed on world stock exchanges in 39 countries around the world and together represent a capital market with a value of more than 1.7 trillion dollars.
In the United States, a REIT is a company that owns, and in most cases operates, income-producing real estate, while some REITs finance real estate and construction projects.
Properties in a REIT’s portfolio may include office buildings, residential complexes, healthcare facilities, hotels, retail centers, warehouses, etc.
Generally, REITs specialize in a specific real estate sector. However, diversified and specialized REITs may have different types of assets in their portfolio, such as a REIT consisting of office and retail real estate.
Many REITs are publicly traded on major security exchanges, and investors can buy and sell them like stocks over time to trade on the exchanges. These REITs typically trade on significantly high volumes and are considered highly liquid instruments.
On the other hand, there are private REIT funds that are not publicly traded on the exchanges.
Types of REITs:
- Equity REIT.
Most REITs are this type, i.e., they own and manage real estate that produces income. Income is generated primarily through rents (not through the resale of property).
- Mortgage REIT.
Mortgage REITs lend money to property owners and operators directly through mortgages and loans or indirectly through acquiring mortgage-backed securities. Their earnings are primarily generated by the net interest margin, i.e., the spread between the interest they earn on mortgage loans and the cost of financing these loans. This model makes them potentially sensitive to rising interest rates.
- Hybrid REIT.
Hybrid REITs use the investment strategies of both equity and mortgage REITs.
REITs can also be classified based on how their shares are bought and held, but we’ll discuss that and other details regarding REIT regulations in another article.
Serbian Build Fund LLC is a type of private real estate management fund registered in the USA and starting its business on the real estate market in Serbia with a tendency to expand its business to surrounding countries. With our private fund, you get the opportunity to invest in the real estate market without owning the property and profit from your investment. Our goal is to provide our investors with a stable income in the form of dividends through commercial facilities and investing in construction and ESG projects.
Our business model represents a hybrid system of REIT functioning. Primarily by acquiring commercial buildings (e.g., office buildings), we want to provide our investors with a stable and expected return in the form of annual dividends.
Aside from the acquisitions of commercial buildings, we will also work on financing construction projects of partner companies, as well as other construction companies, and thus provide additional income for the sustainable development of the fund.
Green buildings, wind farms, solar power plants, and other ESG facilities will be the projects we will pursue to help regulate harmful gases and products in the air and help create renewable energy sources in our country. Our fund will also work to improve the conditions for investing in the real estate market for all Serbs around the world.
If you want to learn more about investing in the real estate market and how our fund works, feel free to visit our website and contact us.