What Is a Community Development Trust?

Jim B.

A community development trust is a type of investment opportunity concentrating on real estate which is also designed to provide a benefit for the community at large. It is a specific type of real estate investment trust, or REIT, that focuses its investment on the types of real estate that will help downtrodden members of the community or improve the quality of living in the area. Investors in a community development trust make money through the interest on mortgages purchased by the trust or through the equity on properties owned by the trust. Such trusts must be consistent in their efforts to help the community through the types of investments that are chosen.

A community development trust may invest in equity by purchasing homes or rental properties.
A community development trust may invest in equity by purchasing homes or rental properties.

Many investors are concerned not only with the profitability of their potential investments but also with the way their money is being used. Such investors might be as desirous of seeing their money go to the betterment of society as they are of making a lot of money. The concept of societal betterment through investment money is at the heart of a community development trust, which combines typical real estate investment with philanthropic motives.

In most cases, a community development trust is set up in much the same as way as any other real estate investment trust. Investors may purchase shares of the trust in the open market or buy into a mutual fund which concentrates on real estate. A trust may invest in equity by purchasing homes or rental properties. It also may include debt investment with the purchase of mortgages from other lenders.

When the real estate market is in good shape, these REIT's can be extremely profitable to their investors. A community development trust concentrates these profitable investments on those real estate opportunities that have a positive impact on society. In the United States, such trusts generally have to be in accordance with the Community Reinvestment Act, an act of Congress stipulating that investments be focused on and available to all portions of society, regardless of social standing or circumstance.

As such, a community development trust may choose from a number of investments designed to improve the living conditions in a specific community. It might work to provide low-income housing for a community featuring many poor citizens. Rebuilding a community hit hard by a natural disaster is another example of how a trust can benefit society. In these ways, the investors in a trust can attempt to help out communities and individuals in need while still satisfying their own financial concerns.

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