REITs (Real Estate Investment Trusts) are those Organizations or Companies that own and invest in various property sectors like malls, Buildings, etc. For easy understanding, you see them as companies that pool capital from various investors and pay dividends in return.
It provides an alternative for investors to participate in real estate without having to buy, manage, or finance any properties themselves
No, not every real estate organization can claim to be a REIT. To be eligible for REIT a Real Estate organization needs to satisfy a certain number of factors. REITs trade stock exchanges and provide a couple of benefits to investors.
Let's dive deeper into this matter and understand what REITs are, how REITs work, how to invest in REITs, and what are their pros and cons.
REITs can be formed in India by commercial firms that buy, fund, or operate commercial real estate properties. When a REIT becomes available for public investment, one can buy shares at a specific price. The funds raised from the investors are later utilized to buy, construct, or fund commercial real estate properties.
Rental revenues and investment returns are the primary sources of income for REITs. One earns profits and the other benefits from REIT investment as a REIT investor.
Although there are only two types of REITS, Equity REITs and Mortgage REITs. But, depending upon the ownership they can be further classified into private REITs and public non-listed REITs as well. Let's understand these REITs further.
Equity REITs: Most the REITs work as Equity REITs. They provide their investors partial ownership access to portfolios of various income-generating assets, which they cannot afford on their own.
These REITs deal with a variety of real estate assets where there's the involvement of tenants. These assets could be offices, hotels, shops, or apartments. These REITs share profit with their investors in the form of dividends.
Mortgage REITs: Also known as mREITs, these REITs purchase properties and earn interest on them by mortgaging them. Later, they use this profit for reinvestment and financing in the income-generating real estate.
Private REITs: Private REITs consist of real estate funds of the companies whose shares don't trade on the NSE (National Stock Exchange). These types of REITs can only be purchased by organizations that invest money on behalf of their clients and fellow members.
Public Bon-Listed REITs: These RITS are registered with Security and Exchange Commission (SEC) and don't trade on the national stock exchange.
REITs deal with a huge variety of real estate properties like offices, apartments, warehouses, shops, medical amenities, data centers, and hotels.
Usually, REITs deal with a variety of property types, but some also deal exclusively with particular types of property.
REITs can be divided broadly into 13 sectors which include the following fields:
As an investor one can purchase REIT shares, which are traded on major stock exchanges, similar to any public stock. Investors can also buy shares in a REIT mutual fund or through Exchange Traded Fund (ETF).
Fact - REITs are used by nearly 145 million Americans, and many of them have invested through mutual funds.
Almost all target-date funds have REIT proportions, and most of the REITs are used in a pension plan. These pension plans are available to teachers, firefighters, nurses, state government employees, and others.
One can consult a broker, investment planner, financial advisor, or Real Estate consultant to understand investment in REITs. As per your profit expectations, they will guide you in your financial decisions.
Also, Read- How to Calculate Market Value of the Property
Like any other investment option, REITs also have positives and negatives. It is not safe to invest in something of which we are very little aware. Understand the Pros and Cons of REITs and decide whether you should invest in them or not.
Given below are the Pros of investing in REITs:
Given below are the Cons of investing in REITs:
REITs can be a great ROI for you if you understand their functioning and have what it takes to invest in them. The question How to Invest in REITs, comes later, first, it is important to understand its pros and cons. Every investment that involves real estate has a high stack, and so thus the risk & profit. It is advised to invest in REITs only after understanding the involved risks.
If you need any help with investing in REITs then you can request a call back to our team.