What is REIT or Real Estate Investment Trust? A Simple Explanation for Kids

What is REIT or Real Estate Investment Trust? Real Estate 101: Easy Peasy Finance for Kids Beginners

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Introduction to REIT for Kids and Teens

This video explains the concept of REIT in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about Real Estate Investment Trust, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.

Suitable for students from grade levels:

• Kindergarten
• Elementary School
• Middle School
• High School

The topics covered are:

• What is an REIT
• Are there different types of REITs
• How can you invest in an REIT / Real Estate Investment Trust
• What are the advantages of investing in a REIT instead of an individual property
• Are there any disadvantages of Real Estate Investment Trusts

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What is an REIT?

An REIT, also pronounced “reet”, stands for Real Estate Investment Trust.

It is a company which owns, manages, or finances many types of income-producing real estate properties like office buildings, apartments, hotels, hospitals, shopping malls, cell towers, etc.

REITs pool money from many investors, and then invest it in real estate. This aspect of a REIT is similar to a mutual fund.

Are there different types of REITs?

Yes. Here are the 3 main types:

1. Equity REITs – which own and operate real estate that earns money mainly from rent.
2. Mortgage REITs – which hold mortgages or mortgage backed securities and earn money in the form of interest
3. Hybrid REITs – which are a combination of Equity and Mortgage REITs.

How can I invest in an REIT / Real Estate Investment Trust?

Shares of publicly traded REITs are listed on a stock exchange, and can be bought or sold through a broker like any other stock.

If you don’t want to invest directly in individual REITs, you can invest in a REIT Mutual Fund (MF) or REIT Exchange Traded Fund (ETF).

What are the benefits of investing in a REIT instead of an individual property?

REITs have many benefits.

1. REITs provide easy access especially to commercial real-estate without the hassle of buying or managing properties

2. You can invest with very little money compared to how much it would cost to actually buy a property.

3. By law, REITs are required to pay 90% of their earnings as dividend which provides investors a steady stream of income.

4. You can achieve diversification by adding REITs to your portfolio. You can even take the diversification up a notch by investing in REIT Mutual Funds or REIT ETFs.

5. Since REITs are usually publicly traded, they are much more liquid than traditional real estate.

Are there any disadvantages of Real Estate Investment Trusts?

Since REITs pay out 90% of their earnings as dividends, they don’t have much left for reinvestment – so the potential for capital appreciation is very little.

Also, REIT dividends are taxed at the regular income tax rate, which is higher than the capital gains tax rate.

And if you invest in a REIT mutual fund, then you should be wary of funds with high fees as they can eat into your return.

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Download Transcript: Ideal for Use by Teachers in their Lesson Plan to Teach Kids & Teens

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Podcast: What is REIT or Real Estate Investment Trust