Introduction- REITs allow you to invest in a group of properties through a single investment. At the same time, the entire trust is managed by a large-scale ETF provider who invests money in several types of properties. One can start in property management and acquisitions or move to asset management and finance.
If you have some experience in finance, you can work in investor relations and manage communications with the REIT's investors. You can also work in the investor relations division responsible for producing the annual report and proxy statements. There are several other types of jobs in REITs.
The real estate investment trust (REIT) is used for firms that own, operate, and fund income-producing properties. The most common types of REITs are equity, mortgage, and hybrid. You can even think of REITs as a mutual fund, where instead of investing in stocks, they invest in properties.
If you invest in REITs, you benefit from the same revenue streams as traditional real estates investment yields, such as price gains and rental income. In addition, REIT investing is passive, allowing you to invest relatively little money. Most investors in the financial sector invest directly in real estate through companies like REITs.
There are over fifty qualified REITs listed on the London Stock Exchange with a combined value of over £54bn. To qualify as a REIT, the firms should invest more than 75 per cent of the assets in different types of properties, and they need to earn more than 75 per cent of the gross income through mortgage interest, rent or income from the sale of properties.
5 Types of REITs and How to Invest in Them
REITs can be divided into two categories - Equity REITs are funds that own physical properties and earn through renting the properties to individuals or businesses. The rental income earned through it is paid out to shareholders in dividends. Normally publicly traded, equity REITs include residential, commercial or hospitality real estate companies.
Mortgage REITs(mREITs) are funds that buy mortgages or mortgage-backed securities. In addition, several other categories correlate to specific types of properties, such as:
1. Residential REITs-
Residential REITs purchase and manage rental or leased accommodations in the housing markets, including student housing, apartment complexes, family homes and manufactured home parks that they rent out to residents.
If you want to work as a developer, you need to work with complete dedication and learn different real estate markets. In addition, a good developer should have a passion for the business.
2. Office REITs-
You can work in the office REITs sector. If you are a good developer, you can earn a decent salary through REIT good career. You can make investments in several office spaces and generate rental income through tenants. If you want to work in the field, you must look for the market condition, demand, vacancy rates and scope of occupation.
In addition, you must be aware of real estate market conditions. A real estate investment trust is a good career option as it combines the benefits of direct investing.
To invest in REITs, you should check the growth prospects of the sectors where you are investing. For example, an investor could purchase a diversified REIT or invest in several different REITs to build a diversified portfolio.
Therefore, you must always search for REITs to get you long term growth and secure returns. Or, you can invest in public non-traded REITs through a financial advisor or a real estate crowdfunding portal.
3. Retail REITs-
Most retail REITs' stockholding is in shopping centres, independent retail and shops. So if you wish to put your money into a retail business, you must check the industry conditions.
If you determine to invest in REITs, you must look for the best rental opportunities available in the mini-markets and supermarkets.
4. Medical REITs-
With the increasing demand for medical and old-age care homes, the demand for medical REITs has grown. You can get stakes in several sectors like hospitals, nursing complexes, and retirement housing. The earnings in the sector depend on rental fees, medical remunerations, and private payments.
5. Affiance REITs-
Mortgage REITs earn through the interest on the mortgages they invest in. Research shows that 10% of stockholding happens in the mortgage sector. Several companies offering REIT investing options in affianced and not equity have risk factors.
What are REITs?
Most REITs are publicly traded, and numerous companies allow investors to fund multiple properties through them. Their stocks trade on a stock exchange just like other publicly traded companies.
Real Estate Investment Trust or REIT can easily be accessed through ETFs, where one can invest in a diversified group of assets in a single transaction. Such assets could contain shares and commodities like gold and oil to real estate.
The ETF provider pools funds through different investors, bringing the total up to millions or potentially billions to generate income to invest in the real estate. Anyone who is an investor will receive the benefit through dividends paid regularly.
Are REITs a Good Investment In 2021?
It's important to know that REITs are not without risks because companies make rent payments, and such companies could default. While healthcare REITs benefited from the increased demand for hospitals and vaccination centres during the COVID crisis, retail suffered huge blows due to the rise of online shopping and the closure of high street stores.
The two ways REITs earn and benefit their investors are when the price of the REIT share increases and when the rental income rises, they can pay higher dividends.
The investors can opt for it via an ETF or buy shares in companies themselves. However, investing via an ETF might be a better option if you want to diversify.
Investing in a REIT can be a good addition to your pension portfolio. Such investments deliver annual dividends and offer a good long-term choice since real estate investments typically grow over time.
Either you can invest in REITs, or you could choose to speculate on the shares of REITs or ETFs. Investors can gain through both rising and falling prices when you trade REITs because you don't have to assume ownership of the shares.
Advantages and Disadvantages of Real Estate Investments
One can start with a small investment of as little as £50.
No Marketable Tax- One of the advantages of such investments is that REITs' income is the dividend payouts to investors, and the investors don't have to pay income tax on the earnings.
Better dividend production-
The earnings are correlated to market performance, and you can buy into a diversified portfolio to get a safe set of choices.
Overall Income Potentiality-
Some REITs offer overseas investment options, and you do not need to be an expert to invest. Along with better dividend yields, some REITs serve as great income investments. A few dozen REITs also pay dividends monthly instead of quarterly, which helps smooth out the income stream.
Approach to Economical Real Estate-
REITs were primarily developed to provide regular income through real estate stocks where stockholders could own a portfolio of several shopping centres, rental apartments and medical centres. As a result, those working in the sector get the opportunity to earn through many different assets, and they can have a REIT good career option.
Portfolio Assortment and Volatility-
Buying or selling a real estate investment trust is easy and quick. Also, the money stocked in the REITs is easily retractable.
Some of the disadvantages of such investments are –
Sensitive Rates of Interest- Fluctuations in the interest rates can affect REITs, just like stocks. The returns/dividends may depend on the performance of the regional housing market.
Extended Investments- If you invest in REITs in a portfolio of assets, you may not be able to see where the money is invested exactly.
Real Estate-Specific Risk Factors- REITs may be subjected to unpredictable economic disruptions, such as the coronavirus crisis. Although it can keep your revenue portfolio diverse, you must know that most separate REITs are very less diversified. They are highly property-specific. Also, each financial property comes with its risk factors and disadvantages.
Dependence on Debt- When your REIT gets a better dividend, the management may force you to bid on a larger purchase to expand the portfolio. It will diminish the rental income rates.
Are REITs Safe During a Recession?
Parts of the real estate can offer insulation against economic downturns or when the stock market crashes. REITs offer a completely secure and efficient method to grow your finances and get recession-proof earnings as it works like mutual funds.
One could say that stocks could act unpredictably during interest rate fluctuations. For example, when interest rates grow, share prices decline, causing stock traders to short sell their stocks out of worry that prices won't rise again in the future.
REITs, on the other hand, react oppositely. Their prices rise when the interest rate increases. Also, economic growth helps promote the value of REITs and, in turn, your earnings.
Hence, one should always consider the risk factors and see the trends during the previous recession. The U.K. REITs were launched just before the 2000s' commercial real estate bubble, the time when the capital value of commercial property in the U.K. declined by 9% in 2007. According to CBRE figures, U.K. REITs faced existential threats at the start.
The global financial crisis created another difficulty as the appetite for real estate investment disappeared. A decline in rates shortly followed the recession phase. Further, the shares of London-listed real estate investment trusts and asset managers fell sharply even during Brexit's unpredictability.
Can You Lose Money on a REIT?
You might frequently come across the term NAV when investing in REITs.
It stands for net asset value, and it is calculated from the value of everything contained in the fund minus any outstanding payments or debts.
One should know that the NAV of a REIT tracks the fund's performance.
While REITs are best when committed to the long term, non-traded REITs are illiquid as they generally cannot be sold in the open market. Liquidity in secondary market investment in U.K. REITs is further supported by differential rates of U.K. transfer tax applicable to U.K. firms.
If you want to raise funds through your REIT, you can exit by selling it at the current stock price of the ETF, often derived from the NAV.
Are REITs Good Investments?
REIT investing has a comparatively low correlation with other assets. Diversified REITs own and manage property assets across different subsectors and make up for most U.K.-listed REITs. However, specialised REITs have experienced mixed fortunes in recent years.
It makes them an excellent portfolio diversifier which helps in reducing overall risk and boosting returns. In addition, they serve as a great option for those on pension income who need an extra income stream to cover their growing expenses after retirement.
What REITs Should I Invest In?
Publicly traded REITs are bought and sold on major stock exchanges, such as the NYSE and the London Stock Exchange. Since many REITs are traded on regular stock exchanges, they have relatively higher liquidity compared to the option of investing in real estate directly. However, some are non-listed REITs that do not trade on major exchanges.
Private REITs are not listed on a stock exchange and are generally not available to all investors.
One can opt from any of the five categories to invest in REITs which include –
Retail - Shopping malls and retail stores constitute over 20% of REITs.
Residential - One can have a good career in the residential sector where you could deal in assets like apartment complexes or single-family rental properties. It can be specialised even further; for example, some REITs solely focus on student housing or specific communities.
Medical REITs- You can invest in REITs in hospitals, nursing homes, pharmacies, hospitality and eldercare. Such REITs focus solely on healthcare facilities. For example, hospital buildings, senior housing, medical offices, and wellness centres come under this category.
Office REITs- Investing money in offices, storage, warehouses, and other business centres can improve rental profits over a longer period.
Mortgage REITs- They are also known as mREITs. They may indirectly use mortgages or loans or mortgage-backed securities (MBSs). Instead of real estate, about 10% of REIT investments occur in mortgages.
A real estate investment trust possesses and operates in several real estate sectors to generate income. One can invest in an individual property or buy in a mixed-asset portfolio. U.K. based REITs delivered poor risk-adjusted returns compared to U.K. stocks from 2007–to 2014, with limited portfolio diversification options.
However, since the GFC, UK-REITs have been delivering strong risk-adjusted returns compared to U.K. stocks' limited portfolio diversification benefits.