by Yieldstreet | Staff
Whether you’re new to investing, or a seasoned accredited investor, you may at some point have wondered, “What exactly is a REIT?” A REIT, or a real estate investment trust, is an organization that owns and operates income-generating real estate. There are a variety of commercial and residential properties that fall under the REIT umbrella, including apartment or condominium buildings, shopping centers, hotels, industrial warehouses, and even hospitals.
REITs in the United States own approximately $3 trillion of gross real estate assets. In 2017, public listed equity REIT portfolios included more than 500,000 properties. In addition to funding the real estate where many of us work and play (think amusement parks or casinos), and even where some of us live (condominiums), REITs also contribute $140.4 billion of labor income and provide 2.3 million full-time jobs, as outlined in EY data commissioned by Nareit.
Quite simply, REITs enable investors to access diversified pools of income-producing real estate that they would otherwise not be able to access on their own, due to the amount of liquid capital required.
Real estate investment trusts were established under the Eisenhower administration in 1960 to give investors the ability to put money into income-producing real estate through the purchase of securities. This helped provide investors with the opportunity to have diversified, dividend-producing portfolios. Under this business model, a REIT leases out real estate and collects rent on the properties. The rental income is then distributed to shareholders in the form of dividends.
In order to qualify as a REIT, there are certain Internal Revenue Code rules that a company must be in compliance with, and certain requirements that must be met. Including (but not always limited to):
Now that you can answer the question of what is a REIT?, let’s take a look at what kind of investors could benefit from them. REITs can provide a great way for certain individuals to take advantage of real estate investing without having to actually purchase a property. They may also be an option for an investor that doesn’t feel comfortable assessing and vetting the risks of a real estate investment on their own. REITs allow investors to gain access to income-generating properties while having the peace-of-mind that their investment is managed by an experienced real estate investor.
In addition to learning what a REIT is, you need to be familiar with the different types of REITs. REITs come in a variety of classifications that are based on both business type and how shares are transacted. REITs are either Publicly Traded REITs, Public Non-traded REITs, or Private REITs. Here’s a quick overview of each type of REIT:
Publicly Traded REITs issue shares that are listed on a national securities exchange. This form of REIT is regulated by the U.S. Securities and Exchange Commission (SEC) and shares are bought and sold by individual investors.
Public Non-traded REITs are not traded on the stock exchange, but are registered with the SEC. As they are not impacted by market fluctuations, they tend to be more stable than publicly-traded REITs. They do, however, have lower liquidity.
Private REITs, or private placement REITs are only available to an exclusive group of investors, are not publicly traded, and do not need to be registered with the SEC. These types of REITs are generally not liquid.
In addition to there being different types of REITs, there are also different structures through which REITs invest. Each of the above REITs has a corresponding structure through which they invest. Let’s take a look at those options:
Equity REITs are the most common type of REITs. Under this model, revenue is driven through rent and not from the resale of properties within the portfolio. These REITs typically own the properties themselves and generate income from these properties. These REITs benefit from increasing real estate values.
Mortgage REITs (mREITs) provide money to real estate operators either directly through mortgages or through the acquisition of mortgage-backed securities (MBS). These types of REITs provide mortgages on real properties, are impacted by interest rate increases, and as a result, are more susceptible to outside factors than some of the other REIT classifications.
Hybrid REITs offer more diverse portfolios as they hold both physical rental properties and mortgage loans.
As with any investment, it’s important to do your research to ensure that the benefits outweigh potential risks and that it ultimately aligns with your financial goals. Real estate investment trusts provide an alternative means to investing in real estate assets, whether publicly traded or not.
There are many advantages to this type of investment, including low minimums, high dividend yields, and mandatory investor distributions. However, it’s important for investors to understand both the pros and cons of REITs.
A few drawbacks to REITs include: overhead fees that impact profitability, sensitivity to market fluctuation and interest rates, and the complexity of the asset pool which often takes advantage of leverage, all which make understanding the risk complex.
Depending on the type of REIT, there are varying advantages and disadvantages. For instance, when it comes to sharing value transparently, publicly-traded REITs have market values that are readily available. However, if the REIT is non-traded, the estimated value per share may not be available until 18-months after an offering closes.
When it comes to taxes, shareholders are responsible for paying taxes on dividends and capital gains that result from their investment in the REIT. The dividends are viewed as regular income and do not receive reduced tax rates—some investors may benefit from the 20% QBI deduction.
Real estate can be a great way to help build wealth and REITs provide a means to diversify investment portfolios while at the same time potentially earning higher returns. It has typically been an arena only available to well-connected investors with a ton of capital. Fortunately, REITs make it far easier for individual investors to participate and are available in several forms, including mutual funds, crowdfunding platforms, and exchange-traded funds (ETFs). As a result, it is relatively easy for an investor to get started, regardless of their portfolio size.
To jumpstart your portfolio diversification, you can invest in a publicly-traded REIT listed on the stock exchange by acquiring shares through your broker. If you are looking for non-traded REITs, you will need to leverage a broker or financial advisor that participates in this specific type of offering.
To avoid fraud, we suggest utilizing the SEC’s EDGAR system to verify the registration of both publicly traded and non-traded REITs. Before you invest, be sure to review the REIT prospectus to gain a better understanding of the associated risks and fees. Publicly-traded REITs will also have disclosure filings, annual reports, and quarterly reports available for your review in addition to prospectus information on the EDGAR database.
REITs provide an avenue for you as an individual investor to help diversify your portfolio and profit from income produced through commercial real estate without the headache of actually purchasing the property yourself. As outlined above, there are several types of REITs available and it’s important to do your due diligence or consult with your financial advisor to understand the option that is best for you and your financial goals.
This communication and the information contained in this article are provided for general informational purposes only and should neither be construed nor intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. Any link to a third-party website (or article contained therein) is not an endorsement, authorization or representation of our affiliation with that third party (or article). We do not exercise control over third-party websites, and we are not responsible or liable for the accuracy, legality, appropriateness or any other aspect of such website (or article contained therein).
Sign up with your email address
Securely verify your identity and link a bank account
Verify your accreditation (if applicable) to access all of Yieldstreet’s offerings.
Our weekly podcast providing ideas about how to make money work for you and bring you closer to your dreams.
1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.
2 Represents a net estimated, unrealized annualized internal rate of return (IRR) of your portfolio and is based by reference to the effective distribution dates and amounts to and from the investments, as well as any outstanding principal and accrued and unpaid interest as of the current date, after deduction of management fees and all other expenses charged to the investments.[read more]
3 "Annual interest" or "Annualized Return" represents an annual target rate of interest or annualized target return and "term" represents the estimated term of the investment. Such target interest or target returns and estimated term are projections of the interest or returns and or term and may ultimately not be achieved. Actual interest or returns and term may be materially different from such projections. This targeted interest or returns and estimated term are based on the underlying investments held by the applicable.
4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.
5 The Fund will cease investing and seek to liquidate the Fund's remaining portfolio no later than 48 months after the Fund's initial closing. It may take up to twelve months thereafter to fully monetize any remaining illiquid investments in the Fund's portfolio.
6 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.
7 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including Nov 15th, 2021, after deduction of management fees and all other expenses charged to investments.
8 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Prism Fund before investing. The prospectus for the Yieldstreet Prism Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetprismfund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.
No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.
Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefor.
Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.
Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.
Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.
Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.
Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and willing and able to accept the high risks associated with private investments.
Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.
Banking services are provided by Evolve Bank & Trust, Member FDIC.
Investment advisory services are provided by YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission.
Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.