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  - Introduction to Investing - Beginning - Five Questions to Ask Before You Invest
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  1. Home.
• Introduction to Investing.
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  Main navigation
  
  - Save and Invest - Define Your Goals.
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  Real Estate Investment Trusts (REITs)
  
  What are REITs?
  
  Real estate financial investment trusts (" REITs") allow individuals to purchase massive, income-producing property. A REIT is a company that owns and typically runs income-producing property or related properties. These may consist of office structures, going shopping malls, apartment or condos, hotels, resorts, self-storage centers, warehouses, and mortgages or loans. Unlike other property companies, a REIT does not develop real estate residential or commercial properties to resell them. Instead, a REIT buys and develops residential or commercial properties mostly to run them as part of its own financial investment portfolio.
  
  Why would someone buy REITs?
  
  REITs provide a method for specific financiers to earn a share of the income produced through business property ownership - without actually having to go out and buy industrial property.
  
  What kinds 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 might be signed up with the SEC however are not publicly traded. These are called non- traded REITs (likewise referred to as non-exchange traded REITs). This is one of the most important differences among the different sort of REITs. Before purchasing a REIT, you must understand whether or not it is publicly traded, and how this might impact the advantages and dangers to you.
  
  What are the advantages and threats of REITs?
  
  REITs provide a method to consist of property in one's financial investment portfolio. Additionally, some REITs may provide higher dividend yields than some other investments.
  
  But there are some risks, especially with non-exchange traded REITs. Because they do not trade on a stock market, non-traded REITs involve special risks:
  
  Lack of Liquidity: Non-traded REITs are illiquid financial investments. They typically can not be sold easily on the free market. If you require to sell a property to raise cash rapidly, you may not be able to do so with shares of a non-traded REIT. Share Value Transparency: While the market cost 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 normally do not offer an estimate of their worth per share until 18 months after their offering closes. This might be years after you have actually made your investment. As an outcome, for a substantial time duration you may 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 may be drawn in to non-traded REITs by their relatively high dividend yields compared to those of openly traded REITs. Unlike publicly traded REITs, however, non-traded REITs often pay distributions in excess of their funds from operations. To do so, they may use offering proceeds and borrowings. This practice, which is normally not used by openly traded REITs, lowers the worth of the shares and the money offered to the company to acquire additional properties. Conflicts of Interest: Non-traded REITs usually have an external manager rather of their own workers. This can result in possible conflicts of interests with shareholders. For example, the REIT might pay the external manager substantial fees based on the amount of residential or commercial property acquisitions and assets under management. These fee rewards might not necessarily align with the interests of shareholders.
  
  How to purchase and sell REITs
  
  You can invest in a publicly traded REIT, which is noted on a significant stock exchange, by acquiring 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.
  
  Understanding fees and taxes
  
  Publicly traded REITs can be purchased through a broker. Generally, you can acquire the typical stock, preferred stock, or financial obligation security of a publicly traded REIT. Brokerage costs will use.
  
  Non-traded REITs are typically offered by a broker or financial adviser. Non-traded REITs normally have high up-front charges. Sales commissions and in advance offering charges normally amount to around 9 to 10 percent of the financial investment. These costs lower the worth of the investment by a substantial quantity.
  
  Special Tax Considerations
  
  Most REITS pay out a minimum of 100 percent of their gross income to their shareholders. The shareholders of a REIT are accountable for paying taxes on the dividends and any capital gains they get in connection with their financial investment in the REIT. Dividends paid by REITs usually are dealt with as common earnings and are not entitled to the decreased tax rates on other types of business dividends. Consider consulting your tax advisor before buying 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 publicly traded and non-traded REITs through the SEC's EDGAR system. You can likewise use EDGAR to examine a REIT's yearly and quarterly reports as well as any offering prospectus. For more on how to use EDGAR, please see Research Public Companies.
  
  You need to likewise have a look at the broker or financial investment consultant who recommends buying a REIT. To find out how to do so, please visit Dealing with Brokers and Investment Advisers.
  
  Additional information
  
  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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