How You Can Buy A Hotel
Owning property is a great way to set up an extra income stream. Most of us don’t have the $2-$60 million to build or purchase a hotel though. You can buy shares of a hotel just like any other stock in the form of a REIT (Real Estate Investment Trust). REITs are designed to pay out 90% of their earnings in the form of dividends. In 2008 you could earn up to $3.08 per share which can add up if you own a lot of shares.
Learn how REITs can earn you big dividends…literally.
First, though, let’s back up and talk about REITs for a moment. In case you’ve forgotten or have never studied them, a real estate investment trust, or REIT, is a special type of corporation focused on acquiring and managing real estate and real estate related assets. One of the things that differentiates REITs from ordinary corporations is that Congress made them exempt from corporate taxes provided several strict conditions are met, the most relevant of which is the distribution of at least 90% of all of profits in the form of cash dividends to stockholders.
Before buying a REIT you should have an understanding of the type of REIT you are buying. You can buy industrial, mall, apartment, office, or hotel REITs. If you work in the hospitality business you probably understand the cyclical market of hotel REITs much better than you would understand an apartment or office REIT. If you purchased a REIT before the Great Recession you would have seen your shares collapse from $51.50 a share to $6.90 in 2009 and that’s a huge loss. That’s why it’s important to understand the business.
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About Shaun Archer Tatum Shaun works in corporate finance in New York City. He has done financial consulting for several start-ups and has worked at several Fortune 500 companies. He has contributed several finance/investing articles on Seeking Alpha which have been published on Yahoo! Finance.