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  - Introduction to Investing - Getting Going - 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") enable people to buy massive, income-producing real estate. A REIT is a company that owns and normally runs income-producing real estate or associated assets. These might consist of workplace structures, shopping malls, homes, hotels, resorts, self-storage centers, storage facilities, and mortgages or loans. Unlike other property companies, a REIT does not develop realty residential or commercial properties to resell them. Instead, a REIT purchases and establishes residential or commercial properties mainly to operate them as part of its own investment portfolio.
  
  Why would somebody purchase REITs?
  
  REITs provide a method for private investors to earn a share of the earnings produced through commercial property ownership - without really having to go out and purchase industrial real estate.
  
  What types of REITs exist?
  
  Many REITs are signed up with the SEC and are publicly traded on a stock market. These are referred to as openly traded REITs. Others may be registered with the SEC but are not publicly traded. These are known as non- traded REITs (likewise understood as non-exchange traded REITs). This is one of the most essential differences among the various type of REITs. Before investing in a REIT, you ought to understand whether it is openly traded, and how this might affect the advantages and dangers to you.
  
  What are the benefits and threats of REITs?
  
  REITs provide a method to consist of property in one's financial 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 involve unique dangers:
  
  Lack of Liquidity: Non-traded REITs are illiquid financial investments. They usually can not be offered easily on the free market. If you require to sell a possession to raise cash rapidly, you may not have the to do so with shares of a non-traded REIT. Share Value Transparency: While the market price of a publicly traded REIT is easily available, it can be challenging to determine the worth of a share of a non-traded REIT. Non-traded REITs generally do not provide a quote of their value per share up until 18 months after their offering closes. This might be years after you have made your investment. As a result, for a substantial period you might be not able to examine the worth 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 reasonably high dividend yields compared to those of openly traded REITs. Unlike openly traded REITs, however, non-traded REITs often pay circulations in excess of their funds from operations. To do so, they might use providing profits and loanings. This practice, which is typically not used by openly traded REITs, decreases the value of the shares and the money offered to the business to acquire extra assets. Conflicts of Interest: Non-traded REITs normally have an external supervisor rather of their own workers. This can result in possible conflicts of interests with shareholders. For example, the REIT may pay the external manager substantial costs based on the amount of residential or commercial property acquisitions and assets under management. These fee incentives may not always align with the interests of shareholders.
  
  How to buy and offer REITs
  
  You can invest in an openly traded REIT, which is noted on a major stock market, by purchasing shares through a broker. You can purchase shares of a non-traded REIT through a broker that takes part in the non-traded REIT's offering. You can also purchase shares in a REIT mutual fund or REIT exchange-traded fund.
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  Understanding charges and taxes
  
  Publicly traded REITs can be bought through a broker. Generally, you can purchase the typical stock, preferred stock, or debt security of a publicly traded REIT. Brokerage costs will apply.
  
  Non-traded REITs are typically offered by a broker or financial adviser. Non-traded REITs generally have high up-front fees. Sales commissions and upfront offering costs typically total roughly 9 to 10 percent of the investment. These expenses lower the value of the investment by a substantial amount.
  
  Special Tax Considerations
  
  Most REITS pay a minimum of one hundred percent of their taxable income to their investors. The investors of a REIT are responsible for paying taxes on the dividends and any capital gains they get in connection with their investment in the REIT. Dividends paid by REITs usually are treated as normal earnings and are not entitled to the decreased tax rates on other kinds of corporate dividends. Consider consulting your tax adviser before purchasing REITs.
  
  Avoiding scams
  
  Watch out for anyone who tries to sell REITs that are not signed up with the SEC.
  
  You can verify the registration of both openly traded and non-traded REITs through the SEC's EDGAR system. You can also utilize EDGAR to examine a REIT's annual and quarterly reports in addition to any offering prospectus. For more on how to utilize EDGAR, please go to Research Public Companies.
  
  You need to also inspect out the broker or investment consultant who advises buying a REIT. To learn 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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