Real estate investing always meant purchasing, owning, and managing an actual property. But, did you know that it can still be done without actually owning the property? Thanks to REITs, investors need only put their money into corporations that possess substantial portfolios of self-appreciating real estate assets in some of the world’s most desired locales. Welcome to the world of REITs where you can buy real estate without the inconvenience of owning the property altogether. Easy peasy lemon squeezy right?
Real estate investment trusts are popular among investors who wish to buy real estate without the inconvenience of owning the property altogether. These investments, known as REITs, allow investors to deposit money into income-producing real estate. A REIT is best described as a simple way to own real estate without actually purchasing any property. Investors can acquire individual shares of a real estate investment trust, similar to stocks, which gives them little chunks of several properties. This protects them from some of the risks connected with real estate.
What exactly are REITs?
A real estate investment trust (REIT) is a firm that owns, operates, or funds income-generating real estate. Individual investors can now receive income and/or capital gains from real estate investments without having to acquire, manage, or finance the properties themselves.
Similar to investing in equities listed on a stock exchange, investors can purchase shares in a REIT, allowing the typical person to diversify their portfolio into real estate markets.
Different types of REITs?
REITs are often classified into three groups.
- Equity REITs: Equity REITs often possess a diverse portfolio of buildings, which may include warehouses, offices, art museums, hotels, showrooms, luxury residences, and other structures. The majority of the money earned by these REITs comes from rental income provided by these properties.
- Mortgage REITs: These are organizations that earn interest on loans made to businesses and people to acquire real estate; as you might expect, the major revenue source is interest on loans.
- Hybrid REITs: These would be corporations that own, rent, and manage a real estate while also lending to other businesses and individuals and earning interest on the loans granted.
Purchase and sale of REITs for investors
All of the above REITs are publicly traded on the stock exchange, allowing individuals to invest in them. REITs can also be publicly non-listed or private, but because we can’t establish a private firm, we’ll stick to publicly traded REITs.
A real estate investment trust is a popular option since investors may purchase and sell shares exactly like individual equities. Many publicly listed REITs are accessible on various stock markets across the world. There are also REIT mutual funds and REIT exchange-traded funds that allow investors to purchase shares. To acquire or sell shares of a real estate investment trust, investors must engage the services of a broker.
Perks of Investing in REITs
REITs may be a significant aspect of an investment portfolio since they provide a substantial, consistent yearly income as well as the possibility of long-term capital gain.
For example, during the previous 20 years, REIT’s total return performance has exceeded the S&P 500 Index, other indexes, and the rate of inflation (1-3% yearly).
Three Indian REITs have outperformed the BSE Realty Index in 2022: Embassy Office Parks, Mindspace Business Parks, and Brookfield India. According to experts, the post-tax returns on REITS are twice as high as those on fixed-income products. Furthermore, the markets regulator has cut the minimum application value of investments in a REIT IPO from Rs 50,000 to Rs 15,000, making it a more realistic alternative for people.
- Liquidity: Unlike conventional real estate, REITs are listed on highly liquid stock markets, allowing investors to sell their stakes in their assets in seconds rather than months or years.
- Dividends and appreciation: REITs typically earn significant cash flow through the renting of their real estate. This frequently results in dividends paid to investors as well as capital appreciation.
- Diversification: You don’t need to physically own home to diversify your portfolio and have exposure to the real estate market; instead, you may gain exposure to corporations that hold properties in the world’s most desirable locations. That, in and of itself, is tremendous potential.
What to consider before investing in REITs?
Before investing, consumers should be aware that REITs are market-linked and can be volatile, similar to equities markets, according to experts. Furthermore, commercial real estate can have weak periods of capital appreciation, and there are political and regulatory dangers. Investors must consider dividend yields, which show the success of the trust’s portfolio. They must also consider the portfolio’s revenue growth as well as the possibilities of commercial property rental income and occupancy percentage in the trust’s portfolio.
Investors must consider the tenancy’s industries as well as its physical location. Investors should avoid trusts with a portfolio that is heavily focused on a single industry, such as the IT sector, which is transitioning to a hybrid work style and may have an impact on tenancy in the long run.
Because REITs are a new investment option in India, investors must ensure that the actual assets are from credible real estate developers and that the fund managers have an established track record of generating consistent returns.
In unpredictable times, investing in REITs is a great way to diversify your portfolio and generate better returns on your assets.
Assetmonk is a real estate investing platform with a lengthy track record of customer satisfaction. In addition to asset security, the company goes to great lengths to guarantee that an investor’s experience is enjoyable and rewarding. Assetmonk also promises an annual IRR of 12 to 21% on all of its assets.
REITs, New Age Instrument: Investing in Properties Without Actually Investing in One FAQs
Equity REITs, Mortgage REITs, and Hybrid REITs are the three basic types of REITs.
The most significant advantage of REITs is that ordinary investors may earn from real estate without owning, operating, or directly financing assets. They provide a low-cost method of investing in the real estate industry.