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Finance: What is REIT? 8 Views


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Description:

A REIT is a mini-mutual fund for real estate investments. Aw. Sounds cute.

Language:
English Language

Transcript

00:00

finance a la shmoop what is a REIT all right people let's start with the basics

00:08

the letters reet real estate investment trusts it's basically a mini mutual fund [REIT written on chalkboard]

00:14

for real estate investments think a chain of old age homes which might carry

00:19

a market value of a million bucks each but which throw off 80 grand a year in

00:24

net cash profits that is the entire chain of old-age homes throws off 80 [People with homes for heads appear]

00:29

grand a year in cash profits all right in melding together a whole bunch of old

00:34

age homes at least in theory the volatility of anyone home dying that's [Heart rate monitor appears]

00:39

the risk of it and then affecting the creditworthiness of the entire portfolio

00:43

of real estate holdings is lowered with scale a REIT can then borrow money more

00:49

liquidly or easily let the transaction cost $4 or a lot less and it can [Coins falling]

00:54

leverage its legal obligations and its meds buying process with scale because

00:59

it's a lot cheaper per pill to buy four million aspirin a month in just four

01:03

hundred along with volume deals on diapers and dentures that you know [Piles of diapers and dentures appear]

01:06

across a much bigger swath of buyers well REITs have been around for a while

01:10

ironically they came into existence as an extension of the cigar excise tax in [Man smoking]

01:15

1960 and extend as far in ownership as warehouses commercial office buildings

01:20

shopping malls where piercings happen in strange places and apartment complexes

01:25

of all shapes and sizes well to qualify as a read a company must invest at least [An apartment complex]

01:30

75% of its assets in real estate re there that they re NRB holding cash or

01:35

US Treasury bonds with the intent of investing in real estate it has to

01:39

receive at least 75% of its gross profits from real estate rentals it has

01:43

to pay out at least 90% of its taxable profits as dividends to its shareholders

01:48

annually and basically the government is saying well if you're gonna act like a [Man talking in congress]

01:51

REIT you actually have to be one you can't have 75 percent of your gross

01:55

profits in like oil dividends or dividends from tech companies if those

01:59

even exist well a REIT has to have at least a hundred shareholders and have

02:03

its ownership diversified such that at least half of its ownership shares are

02:08

held by five or more individuals like it has to actually look like a fund it

02:13

can't just be a shell corporation put up by one guy to uh you know take advantage [Man stood outside of Shell co.]

02:17

of the system well REITs are publicly available for

02:19

Joe Schmo to invest in they tend to pay a very high dividend and they grow asset

02:23

values at a modest premium to inflation like a few percent a year that is they

02:28

don't grow much but they pay a lot of cash dividend out and that's nice for [Cash falling]

02:32

old people so most of their payback to investors is

02:34

quote bond-like unquote and that's a REIT now keep an eye out for those bulk

02:39

diaper deals for grandpa and good luck dealing with the bulky diapers [Diaper throw into trash and woman appears]

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