An investment trust where a group of people invest their money in residential or commercial real estate business is called Real Estate Investment Trust (REITs). These trusts own and manage large number of mortgages and commercial properties. These trusts in fact show the best features of both stocks and a real estate.
Real estate investment trust as a company manages the operations of income generating commercial properties like warehouses, hotels, shopping centers and apartments. Though there are different varieties of properties available, many of these REITs specialize and concentrate on any one kind of properties only. Those of these which have specialization in health care are known as health care REITs. These trusts were formed in 1960 to enable large scale investments in the property sector, which can then be accessed by individual investors. The main advantage of these trusts is that they help person in selecting a share to invest in from variety of a group instead of making an investment in a single large estate or building.
These trusts are mainly classified into three categories: hybrid, equity and mortgage. The first category are those which own properties and also grant loans to owners of property. The second category consists of management and ownership of income generating properties. The mortgage investment trusts are those which provide money to owners of property by acquiring their loans and mortgage backed securities.
These investment trusts are quite different from limited partnerships in several ways. One of the major difference is in the way to report the annual information on tax to their investors.
In order to become a real estate investment trust, a company should share 90 percent or more of its taxable income among its shareholders once every year. Once the company gets qualified as REIT, it can reduce the dividends which it remits to its shareholders.