What’s a REIT?

The REITs (Real Estate Investment Trusts) and are companies or funds that invest in real estate that generates income. You can buy shares of those funds in the stock market. There are many REIT across Illinois. One of them is Meystel, a company based in Chicago and Skokie.

Meystel is a self-administered and self-managed American real estate investment trust that owns, operates, develops and finances income-producing real estate across Illinois.

The basic characteristics are of REITs are:

• They must have an administrator.
• At least they must have 100 beneficiaries and the 5 most important must not have more than 50% of the total.
•  Must issue negotiable and publicly transferable certificates
• The most important assets must be real estate. In fact, 75% of the income must come from rents, mortgages, profit from the sale of real estate, etc.
• The investments must be mostly long-term.
• 90% of net income must be distributed annually among the beneficiaries. In short, a REIT is simply a vehicle through which a group of investors come together to make real estate investments of scale, which normally would not be accessed by themselves.

The advantages of this product are:

• We do not need a lot of capital to invest in REIT in REITs, since being listed like shares, we can buy according to our availability of resources. On the other hand, if we buy a house or a building we would need access to a considerable amount of capital and credit.
• By adding REITs to our portfolio, we are automatically diversifying our investments, since we incorporate a very important and profitable economic sector.
• Because they are required by law to distribute dividends to shareholders, REITs can represent a good source of income for our portfolio, as well as a good instrument to protect you from inflation.
• The purchase and sale of shares of REITs can be done easily as any other type of shares listed on the stock market, which provides us with liquidity. Very different from the illiquidity that characterizes real estate that may take months or even years to sell.

We have several types of REITs:

Patrimonial: It is that fund that invests in properties and whose income is generated from the income they produce. The properties can be residential, commercial, industrial, hotels, warehouses, and even properties related to health care. Meystel owns primarily 20 residential properties (including two properties under construction), five office properties (including two properties under construction), five retail properties, and one hotel. Meystel is well-known for its in-house building management expertise and responsiveness to tenants’ needs. 

Mortgages: These are interested in mortgage properties such as mortgage bonds, and their income is generated mainly from the interest that mortgage loans produce.

Hybrids: Are those funds that combine the two previous strategies.

Risks

Like any investment, REITs are not risk-free, and the greatest risk lies in vulnerability to a fall in the real estate market. Therefore, Meystel's professionals advise that investors should analyze well the type of properties and the geographical location of the properties that are part of their portfolio.

To reduce the risk, as in many cases, it is best to diversify between REITs, by product, by type of asset or by geographical area.

Conclusion

Due to the income that REITs generate through dividends, it makes this product a very attractive investment instrument. But let's not forget to consider the fundamentals, the risks, the diversification and that every dividend and capital gain is subject to the payment of taxes.