ShmoopTube

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finance a la shmoop what is a REIT all right people let's start with the basics

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the letters reet real estate investment trusts it's basically a mini mutual fund [REIT written on chalkboard]

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for real estate investments think a chain of old age homes which might carry

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a market value of a million bucks each but which throw off 80 grand a year in

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net cash profits that is the entire chain of old-age homes throws off 80 [People with homes for heads appear]

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grand a year in cash profits all right in melding together a whole bunch of old

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age homes at least in theory the volatility of anyone home dying that's [Heart rate monitor appears]

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the risk of it and then affecting the creditworthiness of the entire portfolio

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of real estate holdings is lowered with scale a REIT can then borrow money more

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liquidly or easily let the transaction cost $4 or a lot less and it can [Coins falling]

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leverage its legal obligations and its meds buying process with scale because

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it's a lot cheaper per pill to buy four million aspirin a month in just four

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hundred along with volume deals on diapers and dentures that you know [Piles of diapers and dentures appear]

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across a much bigger swath of buyers well REITs have been around for a while

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ironically they came into existence as an extension of the cigar excise tax in [Man smoking]

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1960 and extend as far in ownership as warehouses commercial office buildings

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shopping malls where piercings happen in strange places and apartment complexes

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of all shapes and sizes well to qualify as a read a company must invest at least [An apartment complex]

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75% of its assets in real estate re there that they re NRB holding cash or

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US Treasury bonds with the intent of investing in real estate it has to

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receive at least 75% of its gross profits from real estate rentals it has

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to pay out at least 90% of its taxable profits as dividends to its shareholders

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annually and basically the government is saying well if you're gonna act like a [Man talking in congress]

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REIT you actually have to be one you can't have 75 percent of your gross

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profits in like oil dividends or dividends from tech companies if those

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even exist well a REIT has to have at least a hundred shareholders and have

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its ownership diversified such that at least half of its ownership shares are

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held by five or more individuals like it has to actually look like a fund it

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can't just be a shell corporation put up by one guy to uh you know take advantage [Man stood outside of Shell co.]

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of the system well REITs are publicly available for

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Joe Schmo to invest in they tend to pay a very high dividend and they grow asset

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values at a modest premium to inflation like a few percent a year that is they

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don't grow much but they pay a lot of cash dividend out and that's nice for [Cash falling]

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old people so most of their payback to investors is

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quote bond-like unquote and that's a REIT now keep an eye out for those bulk

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diaper deals for grandpa and good luck dealing with the bulky diapers [Diaper throw into trash and woman appears]

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