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A Real Estate Investment Trust or REIT is a company that owns and manages income -producing properties. These firms deal in portfolio management of valuable properties. It is a form of investment fund/security that invests in income-generating assets.
Here, shareholders contribute money to invest mostly in commercial properties such as office and commercial complexes, warehouses, hospitals, malls and plazas, hotels, etc. You can consult a Cube Wealth Coach or download the Cube Wealth App.
REITsprovide investment opportunities to all; small and big investors. They can acquire ownership in real estate ventures mutually.
Recently, managing financial investments through real estate has drawn more attention. REITs offer shareholding opportunities to its potential investors to have access to easy money and less hassle.
Similar to mutual funds, REITs provide a trading opportunity to investors with a healthy scope of earning returns in the near future. REIT based companies trade on major stock exchanges.
Companies lease properties and collect the rent they generate. This rent is usually shared as income and dividends amongst the shareholders.
REITs are usually traded under substantial volume and these are considered liquid instruments.
Following are the criterias to meet REITs requirements -
● There should be atleast 100 shareholders. These investors cannot possess more than 50% of the shares.
● Minimum 75% of its assets should be invested in real estate, cash, or treasuries.
● The gross income ( at least 75%) should arrive from real estate investments and opportunities.
● Dividends to the investors have to be paid up to 90% of the company's taxable income.
● REITs must be managed by a Board of Directors and Trustees
It is a blessing for those investors who do not wish to buy and manage the property on their own. REITs encompass a wide array of realty sectors.
Mostly commercial, REITs focus on offices, hotels, stores, warehouses, etc. One company may hold a specific type of property or multiple properties of varied kinds.
Unlike purchasing property and managing it, REITs are an easier choice. The investors are free from the burden of financing and management of properties. They do not have to worry over maintaining the properties and still earn good amounts.
This is the major reason why investors generally receive potentially higher payments of interest and dividends. It is a stress-free investment option.
● Diversification: REITs offer exposure to real estate investments, providing diversification to a portfolio.
● Potential for steady income: REITs often pay out a significant portion of their income to investors as dividends.
● Professional management: REITs provide access to professionally managed real estate investments, reducing the burden of managing properties on individual investors.
● Liquidity: REITs are publicly traded and can be bought and sold on stock exchanges, providing liquidity to investors.
● Accessibility: REITs allow individuals to invest in real estate without the need for large amounts of capital.
The procedure of investing in REITs is simple -
● Buy on a stock exchange: REITs can be bought and sold on stock exchanges just like regular stocks.
● Mutual funds and ETFs: REITs can also be invested in through mutual funds and exchange-traded funds with a portfolio based on real estate assets.
● Online Brokers: Several online brokers allow for the purchase of REITs through their platform.
● Direct Investment: Some REITs offer direct investment options, allowing individuals to purchase properties owned by the REIT.
● Other Factors: When investing in REITs, consider factors such as past performance, dividend yield, management quality, and market trends.
● Equity REIT - This is the most popular investment mode among the other types of REITs. Equity REITs deal in managing properties that are income producers. Regular incomes are received from such properties, mostly through rentals. You can consult a Cube Wealth Coach or download the Cube Wealth App.
● Mortgage REIT - Earnings here are generated on credit. The net interest margins are by lending money to the real estate owners. It is often referred to as mREITs.
● Hybrid REIT - If you are looking to diversify your investment portfolio, you should definitely opt for Hybrid REITs. It is the combination of bothEquity and Mortgage REIT. This type of investment implements both of the strategies and projects scope potentially higher returns with lucrative risks.
● Publicly-Traded REIT- Similar to the stock market, the shares here are listed on the national securities exchange market. The investors deal in trading i.e. buying and selling shares through NSE.
● Non-Publicly Traded REIT - The stocks here are not listed on the stock exchange market. Therefore, they are relatively liquid. On the bright side, comparatively they carry less risk as the prices do not fluctuate here according to the current market prices. Hence, they are more stable.
● Private Traded REIT - Private REITs are not registered with SEBI. They are sold privately to institutional investors.
Ans. You can invest in REITs by purchasing shares of publicly traded REITs on stock exchanges, just like you would with regular stocks. Alternatively, you can invest in REIT mutual funds or exchange-traded funds (ETFs) that focus on real estate securities.
Ans. REIT dividends typically receive favorable tax treatment, with some portions considered return of capital. However, it's essential to consult with a tax advisor as tax rules can vary.
Ans. REITs are subject to real estate market fluctuations and interest rate changes. Additionally, economic conditions can impact property values and rental income, affecting REIT performance.
Ans. REITs can be a good fit for income-focused investors and those seeking diversification, but they may not be appropriate for all investment strategies. It's important to consider your financial goals and risk tolerance before investing. You can consult a Cube Wealth Coach or download the Cube Wealth App.
REITs are one of the fastest and most reliable sources of earning dividends. Considering long-term capital appreciation, it has generally yielded high returns. Recently, India witnessed a huge rise in income earnings through REITs.
Reports by Windmill Capital reveal between the financial years of 2021 and 2022, an increase from 86.7 million square feet to 93.6 million square feet (msf) has been reported. Thus, India witnessed a spike of 6.85% on a yearly basis. You can consult a Cube Wealth Coach or download the Cube Wealth App.
Out of every city, Bengaluru dominates the REITs market with its capture of 27.8 msf. Noida falls next in line with a growth of 11.9 msf. However, before investing your money in any REITs company, it is advised that you do your own part of research and also assure its authenticity.
Any REIT based company or trust has to be registered under the Securities and Exchange Commission (SEC). This can be checked by using the SEC tool (available online for free).
Happy Trading!
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