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REIT Investing 101

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REIT investing is an excellent way to gain exposure to a broad range of investment opportunities, without putting up a large amount of money. REITs hold a portfolio of properties, which means that they can reduce the risk associated with a single investment and enhance total risk-adjusted return potential. However, it is important to be wary of REIT fraud, which is a very real threat. Some companies may use misleading information and underplay risks to lure investors, so it is crucial to research a REIT before investing.

Real estate investment trusts (REITs) lease out their properties to pay off debt and generate income through interest payments and rents. In addition, they pay investors a dividend for the income generated by those properties, which is taxed as ordinary income. However, REITs’ performance is closely tied to interest rate trends, and rising interest rates eat into their profits. The good news is that REITs are typically taxed at a lower rate.

A REIT’s share price rises when its cash flow increases, which makes many of these companies excellent long-term investments. There are three types of capital that REITs use: undistributed cash flow (undistributed cash flow), equity, and debt. The smallest source of capital is unspent cash flow (under-dividend payments), while the other two sources are debt and equity. A REIT’s cost of debt capital is its total interest expense.

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