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Hybrid REIT

A Hybrid Real Estate Investment Trust (REIT) is a type of REIT that combines the investment strategies of both equity REITs and mortgage REITs.

  1. Equity REITs: These trusts invest in and own properties, generating income primarily through rent received from these properties. Equity REITs profit from the long-term appreciation of the properties in addition to the income from rents.
  2. Mortgage REITs: These trusts invest in and own property mortgages. They generate income from the interest that they earn on these mortgage loans. Mortgage REITs typically profit from the net interest margin, which is the difference between the interest they earn on mortgage loans and the short-term borrowing costs.

Hybrid REITs, therefore, provide a way to diversify investments in the real estate sector by including both physical properties and mortgage-backed securities in their portfolios. They generate income through a combination of rents from the properties they own and the interest on the mortgage-backed securities they hold.

This diversification can help mitigate risks associated with changes in property values or fluctuations in interest rates. However, because they involve both equity and debt elements, they can also be more complex to manage and may be subject to more varied market forces.