Explore Real Estate Investment Trust investing: a comprehensive detailed
Real Estate Investment Trust has become a popular Investment for both seasoned investors and newcomers who are looking to modify their portfolios. In this blog will explore the fundamentals of REIT investing, immerse into different types of REITs and mark some players in the market, besides Blackstone REITs and various real estate investment trust companies. Additionally, we will touch on DST properties for sale and how they might fit into your investment strategy.
What is REIT ?
A real estate investment trust (“REIT”) is a company that owns, operates or finances income-producing real estate. REITs provide an investment opportunity, like a mutual fund, that makes it possible for everyday Americans—not just Wall Street, banks, and hedge funds—to benefit from valuable real estate, present the opportunity to access dividend-based income and total returns, and help communities grow, thrive, and revitalize.
REITs allow anyone to invest in portfolios of real estate assets the same way they invest in other industries – through the purchase of individual company stock or through a mutual fund or exchange traded fund (ETF). The stockholders of a REIT earn a share of the income produced – without actually having to go out and buy, manage or finance property. Approximately 170 million Americans live in households invested in REITs through their 401(k), IRAs, pension plans, and other investment funds.
How Real Estate Investment Trust Work
REITs provide a regular income stream to investors. They should distribute at the minimum 90 percent of their taxable income to shareholders in the form of dividends. This is why REITs attract income focused investors, as they often yield higher returns than traditional stocks and bonds.
There are two main types of REITs
Equity
This type of Real Estate Investment Trust is among the most popular ones. Typically, it is concerned with operating and managing income generating commercial properties. Notably, the common source of income here is rents.
Mortgage
Also known as REITs, it is mostly involved with lending money to proprietors and extending mortgage facilities.
Further, REITs tend to acquire mortgage-backed securities. Mortgage REITs also generate income in the form of interest accrued on the money they lend to proprietors.
Hybrid
This option allows investors to diversify their portfolio by parking their funds in both mortgage REITs and equity REITs. Hence, both rent and interest are the sources of income for this particular kind of Real Estate Investment Trust .
Private REITS
These trusts function as private placements, which cater to only a selective list of investors. Typically, private REITS are not traded on National Securities Exchanges and are not registered with the SEBI.
Publicly traded REITS
Typically, publicly-traded real estate investment trust extend shares that are enlisted on the National Securities Exchange and are regulated by SEBI. Individual investors can sell and purchase such shares through the NSE.
Public non-traded REIts
These are non-listed REITs which are registered with the SEBI. However, they are not traded on the National Stock Exchange. Also, when pitted against public non-traded REITs, these options are less liquid. Plus, they are more stable as they are not subjected to market fluctuations.
The benefits of Real Estate Investment Trust investing
Investing in REITs provide numerous advantages
Investors who park their funds in a Real Estate Investment Trust can benefit in these following ways. Steady dividend income and capital appreciation
Investing in REITs is said to provide substantial dividend income and also allows steady capital appreciation over the long term.
Option to diversify
Since most REITS are traded frequently on the stock exchanges, it provides investors with an opportunity to diversify their real estate.
Transparency in dealing
Being regulated by the SEBI, REITs are required to file financial reports audited by professionals. It provides investors with an opportunity to avail information on aspects like taxation, ownership and zoning, hence making the entire process transparent.
Liquidity
Most REITS trade on public stock exchanges and hence are easy to buy and sell, which adds on to their liquidity aspect.
Accrues risk-adjusted returns: Investing in REITs offers individuals risk-adjusted returns and helps generate steady cash flow. It enables them to have a steady source of income to rely on even when the rate of inflation is high.
Notably, REIT as an investment option tends to resemble mutual funds, the only difference being that REIT holds properties instead of bonds or stock options. Additionally, Real Estate Investment Trust investors are entitled to avail the assistance of financial advisors to make more informed decisions in terms of investing in an appropriate REIT option.
How to Invest in Real Estate Investment Trust?
Like popular public stock, investors may decide to buy shares in a particular REIT that is enlisted on the major stock exchanges. They may do so in the following three ways.
Stocks
Individuals who are looking for a more direct way to invest in REITs should consider doing so through stocks.
Mutual funds
By choosing this option, individuals would be able to diversify their investment portfolio significantly. As it is an indirect investment method, investors would be required to invest in such a fund through a mutual fund company.
Exchange-traded funds
With this particular investment option, investors would avail indirect ownership of properties, and would further benefit from its diversification.
Lastly, individuals should make a point to find out how their investments would be compensated. For instance, they should scrutinize the management team of a Real Estate Investment Trust and their performance record with the help of metrics like funds from operations or financial management rate. Similarly, it would prove beneficial to factor in a REIT’s growth in EPS and current dividend income before investing to maximize returns.