A REIT or Real Estate Investment Trust provides an investor with the potential for a great return on your investment. The combination provided by REITs means there’s a great potential for a decent return on investment. For most people investment in property is limited solely to the purchase of their own home and the idea of investing further business property, offices or hotels seems near impossible. These investments however, are perfectly manageable thanks to the development of the Real Estate Investment Trust.
REITs exist to give individuals the opportunity to invest in professentially managed groups of property for example in groups of offices, apartments, complexes, medical buildings, industrial premises or warehouses. REIT performance varies as you’d expect with an investment choice but its genuinely considered a low-risk investment option.
REITs are traded similarly to close-end mutual fund investments. Each REIT contains a fixed amount of shares and these are sold at a price per share value as is the standard model as you would see in close-end mutual fund deals. They vary from mutual funds however as the performance is gauged under different measurements. Rather than looking at net asset value, REITs measure their performance on funds from operations. This breaks down as net income plus depreciations and remunerations, with some exclusions you can discuss with your personal REIT’s management team.
There are many reasons individuals choose to invest in REITs including:
Investors choose REITs and their potentially great dividend pay-outs to guarantee diversification against any potential market downturns in the future as REITs are uncorrelated with the equity markets.
REITs don’t have to pay collaborative income tax. This eliminates the problem of the double taxation of income. You can also have a portion of their REIT income treated as a return of capital.
All REITs are fully managed and overseen by a professional management team. This saves the investor’s time when it comes to measuring their investment’s performance and also the need to research each singular property in the portfolio.
Protection against Inflation
As landlords often increase rates significantly when inflation goes up, REITs, which generate much of their income through their rents, can be an effective inflation protection tool.
All investment opportunities carry risks and the risks of choosing REITs are something you should discuss in depth with your independent financial advisor prior to proceeding. The main risk with REITs is the lack of diversification they offer across different industries and investment types. Your REIT will only ever contain property investments so if you prefer a method of investing with various types of industry within, this is not the choice for you. REITs can also be subject to changes in the value of their properties and prices often fluctuate with changes to the value of any real estate holdings.
Real Estate Investment Trusts are one of many attractive investment portfolio options in the property industry. Choosing to invest in a REIT is one way of giving yourself an investment portfolio which can be diversified within a range of property sectors or specialised to a single commercial area such as office buildings or complexes.