REIT- A Guide to Invest In Real Estate
Over the years many researchers and analysts have been instilled with the notion that REITs are the best way to invest in real estate as we have a limited amount of land in this world.
However, many investors wish to invest in real estate and generate a good amount of returns from it. Thus, REIT(REAL ESTATE INVESTMENT TRUST) can be your light at the end of the tunnel.
So, welcome to this week’s blog this topic is taken on audience demand if you want me to write on a particular topic you can comment down for it. Let’s get back to our topic now.
CONTENT:-
- What is REIT(real estate investment trust)?
- How does the REIT work?
- Different types of REIT. (With my personal favorite one)
- The key differences between REITs and Real estate mutual funds.
- Is it worth investing in REIT?
What is Real Estate Investment Trust?
REITs were introduced into the Indian market in April 2019. These are similar to the stocks in which the investors pool their money into an investment portfolio(ETFs). Thus in such portfolios, the assets are mostly equity shares of companies but in the case of REITs, these are directly or indirectly replaced by real estate.
For instance, the investments would be in malls, Hotels, etc. These can be on lease or bought by the company totally based on which REIT you are investing in. You can get the benefit of returns bearing the high cost of paperwork done for purchasing a property.
The basic structure of REIT consists of a sponsor, a manager, and a trustee who regulates the investments by managing the properties. The income generated from these properties they are distributed among the shareholders in the form of dividend.
How does the REIT work?
As mentioned above the REIT works as a 3-layered structure.
- Sponsor:- The person who forms the REIT is called the sponsor. In most cases, he is a builder or a real estate company. For the first three years, the sponsor has to hold at least 25% of the REIT.
- Trustee:- A trustee is a person who holds assets on behalf of the shareholders and ensures that every shareholder is getting dividends on time. He is appointed by the sponsor.
- Manager:- A manager is appointed by the trustee to look after the investments-related decisions.
Different types of REITs.
REITs can be complicated for one who is actually trying to invest in it. So, that’s why we are here we will simply it for you.
Equity REITs:-
This is the most common and largely chosen REIT. As it consists of commercial properties and earns returns through their rental incomes.
Mortgage REITs:-
As its name implies this scheme lends money as a mortgage or loans to real estate owners to buy properties. Thus, they get income from the interest payments of these loans. When interest rates rise the REIT holders get more benefits.
Hybrid REITs:
It is a kind of REIT that allows you to invest in both equity and mortgage REITs. So,
that you can generate returns from rental incomes and interests. Thus, it helps to diversify your investments.
Private REITs:
This is not regulated by SEBI. Thus, it is not registered on NSE. It is only for a few selected investors.
Publicly traded REITs:
These are regulated by SEBI. It is also registered on NSE. Thus, one can buy or sell it just like regular equity shares.
The key differences between REITs and Real estate mutual funds:-
- Real estate mutual funds mainly invest in real estate companies. Hence, REITs directly invest in properties.
- You can get regular returns from a REIT but a real estate mutual fund would definitely give you a higher rate of return.
- REITs are like equity shares only backed up by real estate properties thus they are liquid and can be en-cashed in a very short time.
Is it worth investing in REIT?
Though the concept of REIT is new in Indian markets it has given a very high rate of returns in very less time. It can be a good choice for people who want to diversify their portfolio.
It gives out regular dividends thus it can also be considered a long-term investment that generates regular income. In my opinion, it can be a good asset to invest in only if you are willing to diversify your portfolio as it can give less returns as compared to other investments but it gives stable returns. It is your call whether to invest or not.
CONCLUSION:-
Hopefully, you have understood the basics of REITs and can make a decision whether to invest in it or not. Do comment down your reviews and any other topic you want me to write about. You can get in touch with us by following us on:-
By:- (THE LEARNERS)
(MOHIT MOTIANI)
