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REITs provide various advantages to investors, including substantial dividends, inflation protection, a low connection to the broader stock market, and cheap transaction costs. Given these characteristics, they may be a smart asset to explore for diversification in today’s “risk-off” market.
Traditionally, real estate investing in India has meant buying physical property, most typically residential property. Another way to break into this industry is to invest in commercial real estate, such as office buildings, shopping malls, and retail stores. This, however, requires large debts and the hassle of obtaining the necessary permissions, locating acceptable tenants, signing contracts, and then collecting rent. However, with the introduction of REITs, this is no longer the case.
Investing in Real Estate Investment Trusts (REITs) is an innovative way to gain real estate market exposure. REITs are corporations that make investments in income-producing industrial and commercial real estate. Retail investors can participate in these trusts to obtain a portion of the revenue generated by commercial real estate ownership without the headaches that come with it.
Embassy Park REIT became the country’s first publicly listed REIT when it debuted in the Indian market in 2019. They weren’t popular at first, but their capacity to deliver a consistent income with low risk has increased their popularity. In reality, investment in REITs generates 12-20% of annual revenue, including capital appreciation and dividends. Dividends can provide a 5-7% annual return to retail investors. Also, Read Fractional Ownership & REITs: Questions Answered By A Professional Real Estate Lawyer.
Things to Think About Before Investing in REITs
Although rewarding, investment in REITS entails some risk. Here are five things to consider before investing in REIT.
Existing Investors’ ROI History
Before investing in any REITs, you should look at factors such as dividend yields, performance history, and revenue growth. The dividend yield reflects the overall health of the portfolio and the management business. It also denotes a higher return on investment. Examine the stock performance and price improvements from the previous year. If the stock is getting traction, it’s a good indicator. Traditional stock indicators such as earnings-per-share (EPS) and price-to-earnings (P/E) ratios are unreliable for evaluating REITs. Look for evidence of increased rental revenue, portfolio value, and profitability (net operating income).
Portfolio Success and Stability
Examining the portfolio of the REIT in which you want to invest might help you gauge its health. Take into account aspects such as occupancy percentage, tenant quality, and sectoral diversification. A strong tenant in a successful industry like IT, pharma, or manufacturing is vital since it reduces vacancy risk and the chance of late rent payments. You can also take into account their geographical diversity and WALE. The Weighted Average Lease Expiry is the average remaining lease duration for tenants occupying the REIT’s facilities. This attests to the portfolio’s stability. A greater WALE indicates a decreased risk of vacancy. Also, Read REITS inclusion in Nifty for real estate investments- Everything you should know!
Reputation and Experience
It is best to invest in a firm that has several years of industry expertise and a proven track record of supporting long-term financial appreciation. A respected real estate developer and fund manager with an established track record will assure high-quality development, portfolio stability, and asset management.
Opportunities for Growth and Market Drivers
Stock market swings have an impact on REITs, but they are mostly driven by real estate market movements. The availability and demand for any property type in the local market will determine its occupancy levels and the rent it may charge. As a result, understanding the industry’s development possibilities, obstacles, and marketplaces in which the firm works is crucial.
Proper Timing
Volatile markets, like the one we’re seeing today, are good for investing in REITs since they give real estate diversity. Furthermore, when markets are down, prices tend to fall, providing you the opportunity to make more money on your investments.
Advantages and disadvantages
REITs were created to provide regular investors with access to high-quality assets that would otherwise be unavailable to them. Most of us cannot afford to buy a complete building, but we may now own a section of it. Furthermore, REITs possess many properties in diverse locations, most of which are in costly real estate markets with exceptionally high entry barriers, providing you with an unrivaled portfolio quality.
Dividend increases are also common among REITs, which are required to pay out 90% of their taxable income in dividends. As a result, the yield on REITs may compound dramatically over time.
REIT dividend yields are much higher on average than those of the Stamp 500 because REITs distribute more of their taxable earnings to shareholders through dividends. As of July 2022, the global average return for public REITs was 3.8%, more than double the Stamp 500’s 1.56%.
Investors often prefer REITs for the income they may provide because they pay such consistent dividends and have higher payout rates. They can, however, also be growth stocks. However, before making any investment, make sure you examine these concerns.
Assetmonk is a real estate investing platform with a long history of satisfied consumers. Along with asset security, the organization takes every precaution to ensure that an investor’s experience is pleasant and worthwhile. Assetmonk additionally guarantees a 12-to-21% annual IRR on all of its asset
REITs: The Right Way To Reduce Your Risks In Today’s Market FAQs
Are REITs a good investment right now?
REITs provide various advantages to investors, including substantial dividends, inflation protection, a low connection to the broader stock market, and cheap transaction costs. Given these characteristics, they may be a smart asset to explore for diversification in today’s “risk-off” market.
Are REITs a good investment if the market crashes?
REITs are real estate investment trusts. REIT performance may be less connected with the stock market, giving them an excellent hedge against market downturns. They also tend to yield bigger dividends than many other assets.
