Real Estate Investment Trusts: A Beginner’s Guide

REIT Real estate investment trust concept
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REITs are investment funds that invest in real estate. They have significant market capitalization and can be purchased by private investors. REITs are real estate investment funds, that is, they buy and manage a real estate portfolio. They invest in real estate (for example, office buildings, shopping centers or hotels) and rent them to their customers. The REITs are therefore similar to the listed land companies on the stock market. Their market capitalization is important and they can be purchased by private investors.

 

What is active management of real estate trusts?

The active management of real estate trusts is a technique which consists in buying and selling real estate, while preserving their value. It is based on the use of innovative financial instruments, such as real estate investment funds (FPI).

The active management of real estate trusts allows you to fully benefit from the profitability of the real estate market. This technique also increases the value of the heritage we already have. Indeed, it offers the possibility of investing in real estate by making an important financial gain. This type of placement is also an excellent solution to make its heritage grow quickly and effectively.

When a real estate investment is made through a FPI, this means that it is a company that supports the purchase and sale of real estate on behalf of its partners or shareholders.

The FPI can offer several different products: SCI Classic (SCI), SCI Familiale (SCI-FAMILIAL), SCI with variable capital (SCI-CV) or OPCI (Collective Professional Placement Organizations in Buildings).

 

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What are the main characteristics of a real estate trust?

A trust is a legal instrument that allows you to manage and control a real estate assets.

It is a very popular tool among real estate investors.

The fact that the property is held by a trust may be an advantage, as this means that the owner will not be held personally responsible for the debts related to the mortgage. However, the implementation of a real estate trust requires some legal and fiscal expertise.

You will have to make sure that your trust respects the laws of the country where it is established. Indeed, each state has different requirements in terms of real estate asset management and housing financing. In some cases, it may be judicious for real estate investors to opt for a trust in order to reduce the tax impact on their real estate portfolio.

Benefit from the advantages of a hybrid product: Trusts allow real estate investors to optimize the tax structure of their real estate portfolio while providing great financial and operational flexibility; Trusts allow real estate investors to easily transfer goods between several trusts. The construction and administration of the trustees are carried out by a qualified administrator who is independent of the property developer; The use of funds from the net heritage generates fewer taxes than with traditional structures (income tax or corporate tax) provided that this use is not carried out on a usual basis.

 

What is the difference between a real estate trust and a common real estate investment fund?

Real estate trusts are complex legal structures, often used by investors who wish to protect their real estate assets. The Trust Immobilier is a tool that allows you to have real estate in a discreet manner, and also to access it through a management contract. The real estate investment fund is a valuable value whose assets are mainly composed (up to at least 70%) of bodily or intangible fixed assets.

The advantages of the common real estate investment fund? The creation of a diversified portfolio and the search for attractive returns are possible thanks to this type of investment, in particular thanks to equity investments. There are different common fund typologies: – equity funds; – Bond funds; – Monetary funds. The common funds offer the investor the possibility of pooling the risks linked to a real estate investment on several financial media and thus reduce his exposure to rental or financial risk. The advantage of the common fund is that when a listed company issues shares, there may be a dilution of capital for historical shareholders, while with a common fund you are subject to the same rules insofar as the Portfolio is not mainly made up of real estate assets.

 

What are the factors to take into account when investing in a real estate trust?

To invest in a real estate investment fund, it is important to take into account several factors. It is particularly necessary to take into account the different strategies used by real estate funds to achieve their objective.

Management companies must also ensure that the strategies selected are appropriate to the needs of investors. For this, they must be able to analyze the financial situation of the market and the future prospects of the real estate sector.

Real estate funds can use different strategies to achieve their objective: – the acquisition or purchase of a property; – the creation or development of goods for mixed use (for example: offices / housing); – the use of assets to obtain a rental yield; – rental-exploitation (for example: purchase with a purchase option); – The rental of real estate occupied by the company itself (for example: hotel).

 

What are the main risks associated with investment in a real estate trust?

Does investment in a real estate trust include risks? Although the acquisition of real estate in a trust is relatively simple, investors must be aware of certain difficulties when they invest in such an investment.

Investors must in particular take into account the following risks: Risk of high loss and unpredictable to the resale of the property; Risk of total or partial loss not covered by insurance; Risk that the property is not rented or that it does not generate enough income to reimburse the loan contracted to acquire the property; A risk that the partner with whom the investor is bound by a pact, be declared insolvent and that he does not reimburse his debts.

Investing in real estate is a good idea, but it can be a little more complex than you might think. You should be careful with things like the type of building you buy, property taxes and other costs, and if you are going to buy a rental building or not or  buy a vacation rental property.

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