Question

Essay. Minimum of 300 words.
Avoid copy-pasted answer.

Describe how Real Estate Investment Trust (REIT) works and its relationship to the capital markets. Can it be considered as an equity instrument or a debt instrument, why?

Answer 1

Real estate investment trust is a company which will be having ownership of real estates and operating in real estate in order to generate income for itself and maximize its value. Real estate investment trust is managing the portfolio of real estates and they will be collecting various kinds of income out of those investments in real estate and they could either collect rent and distribute to the shareholders.

Real estate investment trust is a company which will be providing with various types of securities to the shareholders and shareholders will have a opportunity of investing into the real estate market without getting exposed to the real estate property so they will not have to purchase the property in real but buy into the units of this property is so they will be offering the shareholders with a chance to make return based upon the real estate investment.

There are various advantages which are associated in a relation to investment with the real estate investment trust and they will be providing with the regular income in form of dividend and they will also lead to Capital appreciation of their units as they are continuously traded on the exchange they will be offering with a higher degree of liquidity to the investors.

There will be various disadvantages associated with investment in real estate investment trust and they will be low growth securities and they will no tax advantages to the shareholders.

Real estate investment trust can be treated as equity because they will be listing themselves on the stock exchange then they will be offering with the shares to shareholders and they can be owned by the shareholders in form of equity units for the longer term for the shorter term and they will be having an optimum amount of liquidity associated with them. The common type of income which is associated with the equity real estate investment trust will be rent and they will be earning most from the rent whereas there will be other type of real estate investment trust like not-traded and privately owned as well as mortgage-backed real estate investment trust.