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How REITs work in detail

A REIT (Real Estate Investment Trust) is a special investment structure that allows investors to participate in the real estate market together with a smaller amount. The REIT model is based on a simple principle: investors pool money to jointly purchase or develop real estate. The properties thus acquired are usually rented out or their value is increased through development. The income generated, such as rental fees, is distributed among investors as dividends

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Advantages of REITs in detail:

1. Easy access to the real estate market:
One of the biggest advantages of REIT models is that they bring smaller investors into the high-cost real estate market. Since investors buy properties together, they can own high-value commercial properties for a lower amount.

2. Diversification:
A single REIT can invest in a number of real estate portfolios, allowing investors to spread their risk across different types of properties (office buildings, shopping malls, hotels). This diversification reduces the risk that the performance of a single real estate market segment will have a dramatic impact on returns.
3. Recurring Income:
The rental income from properties owned by REITs provides investors with a regular income stream. Most REITs agree to distribute a significant portion of the income generated as dividends, which provides passive income to participants.
4. Risk Sharing:
Since investors jointly own the properties, the risks are shared. This can be especially beneficial for smaller investors who would not be able to take on the risks associated with real estate market fluctuations on their own.
5. Greater Liquidity:
REITs are often publicly traded companies, so investors can easily buy or sell shares, unlike traditional real estate investments, which can take months to sell a property.

6. Tax benefits:
In most countries, REITs offer certain tax benefits because companies are required to return a significant portion of their profits to investors as dividends. This makes REITs more favorable than many other forms of investment.

REITs are therefore ideal for investors who want to take advantage of both long-term growth in the real estate market and short-term rental income, while gaining access to a diversified and liquid investment portfolio. They can easily participate in the real estate market with a smaller amount of money, while sharing the risk. This form of investment can provide flexibility, security and potentially high returns for both experienced and novice investors.