Real Estate Investment Trusts or REITs are corporations or trusts that use the funds of many investors to purchase and manage income property and/or mortgage loans. REITs are traded on the NSE just like shares; you can buy or sell REITs through your stockbroker.
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REITs offer tax advantages to investors and provide a liquid way to invest in real estate, which is an otherwise illiquid market. Another benefit of REITs is that they allow investors to share in non-residential properties like hotels, shopping complexes, malls, and industrial properties. REITs require no minimum investment and do not necessarily increase and decrease in value along with the broader market. However, they pay dividends no matter how the shares perform.
There are three principal types of REITs:
Equity REITs – purchase, hold and manage commercial and rental properties. Though they will finance these properties in many cases, their primary focus is on profits through acquisition and management.
Mortgage REITs – do not purchase, own or manage properties. They invest in mortgages on real estate properties. Though these properties serve as collateral for the loans the mortgage REIT invests in, the REIT has no ownership position in the property itself.
Hybrid REITs - combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages.