| A little-known real estate investment vehicle in the | | | | loans. Hybrid REITs generate income from both real |
| U.K. is the real estate investment trust (REIT). In this | | | | estate investing and making mortgage loans. |
| article, we'll discuss this method of property investing | | | | Features of REITs |
| and present some information you might find useful if | | | | In the U.K., real estate investment in REITs is |
| you're considering investing in a REIT. | | | | governed by the Finance Act of 2006. The legislation |
| REIT Basics | | | | became effective in January of 2007. At that time, |
| The first thing to know about a REIT is that it's a | | | | REIT status was granted to 9 property companies in |
| way for corporations to buy investment real estate | | | | the U.K. Key features of REITs in the U.K. include the |
| in way such that their corporate income taxes are | | | | following: |
| reduced or eliminated. REITs are required by law to | | | | The company must be located in the U.K. and must |
| distribute 90% of their income, a fact that makes | | | | be listed on a recognized stock exchange. |
| them very attractive to real estate investors. REITs | | | | A single person or entity cannot hold the majority of |
| are similar to mutual funds for stock investments, | | | | the shares in the company. A single person or entity |
| except that they function with real estate rather | | | | cannot hold more than 10% of the shares. |
| than stocks. Since mutual funds are safer | | | | The property-letting activities of the REIT must |
| investments than buying individual stocks, REITs are | | | | comprise at least 75% of the company's overall |
| safer investments than buying individual pieces of real | | | | business activities, including both income and assets. |
| estate property. They're great ways to buy | | | | Investors must receive at least 95% of the REIT's |
| investment property without all the risk and | | | | net taxable profits, but the REIT must withhold any |
| expenses associated with direct ownership. | | | | applicable taxes. |
| Types of REITs | | | | Reasons to Invest in REITs |
| REITs are similar to corporations in that they can be | | | | Property companies that convert into REITs will |
| held publicly or privately. If publicly held, REITs can be | | | | benefit substantially from both the tax exemption |
| listed on public stock exchanges in the same way | | | | and the increased ability to generate income via the |
| shares of common stock in corporations are listed. | | | | stock market. Investors benefit because they gain |
| There are 3 types of REITs: equity, mortgage and | | | | access to the asset class property investing with its |
| hybrid. Equity REITs involve ownership of and | | | | significant dividend returns. REITs also provide good |
| investment in real properties and their income comes | | | | diversification, a must for any serious investor. So, if |
| primarily from the rents charged on these real estate | | | | you're looking to introduce some diversity into your |
| investments. Mortgage REITs involve ownership of | | | | holdings, consider the real estate investment known |
| and investment in property mortgages. Their income | | | | as a REIT in the U.K. |
| comes from the interest they earn on mortgage | | | | |