Family campgrounds and RV parks have become popular investments in the past decade. With the RVIA estimating more than 30 million RV enthusiasts, including renters, in the U.S., it’s easy to see why so many have taken advantage of this booming market. If you want to invest in real estate, particularly within the campground industry, here are the most important things you need to know about real estate investment trusts.
What are Real Estate Investment Trusts?
A real estate investment trust, also known as a REIT, is the company responsible for owning and operating a real estate location that produces income. Established in 1960, individual investors can buy shares in REIT commercial real estate portfolios. Most real estate investment trusts specialize in specific real estate markets, choosing to focus on one particular segment, as opposed to the whole market horizon. As an investor, the biggest benefit a REIT can provide is the ability to own a portion of real estate which can generate dividend-based income.
Understanding Real Estate Investment Trusts
As an investor, it’s important to understand the general business model that most REITs operate under. Put simply, a REIT leases space and then collects rent on the individual properties. Income is then distributed as dividends to shareholders and investors.
In order to be considered a REIT, a company must meet requirements and provisions stipulated by the Internal Revenue Code. These include requirements include:
- A REIT must invest at least 75% of total assets in cash, real estate, or U.S. Treasurys.
- Gross income must include 75% from rent, mortgage interest, or real estate sales.
- Returns must include a minimum of 90% taxable income from shareholder dividends every year.
- An REIT must have at least 100 shareholders after the first year if operation.
- No more than 50% of shares may be held by five or fewer individuals for the final half of a taxable year.
Additional requirements can include corporate taxation in the IRS, along with a board of directors or trustees responsible for the management and oversight of the REIT.
If you are interested in investing in a profitable real estate venture, a REIT responsible for campground ownership may be exactly what you’re looking for. Campgrounds and RV parks serve as stable investments and can benefit your profits and portfolio for decades to come.