1) Explain what are Real Estate Investment Trusts and the various types.

2. Explain the common types of real estate investment securities that are traded in the secondary market in Kenya and those traded in the USA. 

 

Real estate investment trust or REIT is a company that owns and manages income-generating real properties (Chen, 2020). REITs have a steady income flow, is modeled after mutual funds and are likewise publicly traded like stocks. REITs are invested in properties such as real estate, apartment buildings, hotels, medical facilities and warehouses. There are three types of REIT.

Step-by-step explanation

1. Explain what are Real Estate Investment Trusts and the various types.

Real estate investment trust or REIT is a company that owns and manages income-generating real properties (Chen, 2020). REITs have a steady income flow, is modeled after mutual funds and are likewise publicly traded like stocks. REITs are invested in properties such as real estate, apartment buildings, hotels, medical facilities and warehouses. there are three types of REIT:

• Equity REIT: this allows investors to own a property and rent it out to generate profit
• Mortgage REIT: this allows investors to own mortgage property, purchase mortgages from lenders and loan money for mortgages. The profit is derived from the interest earned from the loans
• Hybrid REIT: this is a combination of equity and mortgage REIT

REIT is considered a security that can be traded like stocks. It is very liquid which allows investors to have regular dividend payments.

2. Explain the common types of real estate investment securities that are traded in the secondary market in Kenya and those traded in the USA. 

Common types of REIT in Kenya:

There are two types of REITs in Kenya: D-REITs (Development Real Estate Investment Trust Scheme) and I-REITs (Income Real Estate Investment Trust Scheme) (Munene, 2015). D-REITs are focused on construction and development of real estate while I-REITs are focused on income-generating properties and distribute 80% of its income as dividends to its investors. D-REITS are only offered to professional investors while I-REITs are offered to both professional and retail investors.

Common types of REIT in USA:

• Retail REITs: these are shopping malls and retail complex. Income is generated from the rent of the shopping malls.
• Residential REITs: these are apartment buildings, multi-family rentals and manufactured housings.
• Healthcare REITs: these are hospitals, medical facilities, nursing facilities and retirement homes. Income is generated from occupancy fees, and medicare reimbursements.
• Office REITs: these are office buildings and income is generated from rental fees from tenants. Tenants sign long-term leases that secures a steady income flow.