What is a REIT?
What is a REIT? A Real Estate Investment Trust or REIT (pronounced ‘reet) is a company that owns and, in most cases, manages property on behalf of shareholders. For investors, this means that REITs are a way to invest in buy-to-let property without having to buy property directly.
A brief history of REITs
The REIT originated in the United States in 1960 and the concept has since expanded to other countries.
They are however relatively new to the UK; the necessary legislation only came into effect as recently as January 2007.
Following the implementation of the legislation, some listed property companies chose to convert to UK REITs and new ones have come into being since.
The real estate investment trust is now an established, though still comparatively little-known, property investment vehicle in this country.
Real estate investment trusts in the UK
A UK real estate investment trust can comprise either a single company or a group of companies. It is allowed to contain commercial, office, industrial or residential property or a combination of them.
All REITS must be publicly listed on the London Stock Exchange or AIM. They are exempt from paying corporation tax on profits and gains from their UK property rental business. In exchange, they must distribute at least 90% of their taxable income to investors. This is treated as property rental income rather than dividends which means that taxation of property income happens at investor level rather than at the corporate level.
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What are the benefits of REITs for investors?
For investors, a Real Estate Investment Trust has several benefits.
- It allows investors to invest in property without the hassle and outlay of purchasing a buy-to let property themselves.
- Rather than investing in an individual property, a REIT gives the investor the opportunity to diversify their investment over a number of separate properties thus reducing the level of risk.
- The investor is not responsible for properties held in a real estate investment trust.
- Depending on the real estate investment trust, there are opportunities for both growth and income and there is the potential for high-yield returns.
- The nature of a real estate investment trust means that gearing is generally low
- It is tax efficient compared to ordinary property funds which are liable for corporation tax and tax on dividends.
- As REITs are publicly listed, it is easy to buy and sell shares meaning that the investment has high liquidity the shares are tradeable and have a greater liquidity than holding individual properties.
Real estate investment trusts offer an alternative way to invest in property. For investors considering investing in buy-to-let, a real estate investment trust gives them access to a portfolio of property without having to own a single house and without all the usual hassles of being a landlord.
The Mill Residential REIT (Real Estate Investment Trust)
This was the the UK’s first mainstream residential REIT allowing people to invest in a portfolio of buy-to-let property with shares available to both private and professional investors.
Mill Group’s orginal target was £2,100,000, however the raise went into overfunding and the final total was £2,225,520.
You can read more about the Mill Residential REIT in our ‘Success stories’ section.
Although the Mill Residential REIT investment opportunity has closed on SyndicateRoom, there are a range of alternative investments available on our platform.