If you’re looking to invest in real estate, you are not limited to direct property ownership. Rather, Real Estate Investment Trust (REITs) is a good option to consider for your stake in real estate investment without the hassle of directly owning a property.
Modeled after mutual funds, REIT afford investors the opportunity to invest in real properties and also enjoy the benefits accrued from investment trusts.
It works this way. REITs pool the capital of a number of investors to serve as finance for real estate investments, which in turn allows these investors to own and manage portfolios and real-estate assets. Each investor acquires units in the trust that earn periodic distribution of income and participation in any capital appreciation of invested property.
REITs are traded in the stock market, therefore it’s essential for investors to understand not only the stock market but also the property market, so as to be able to make informed investment decisions. It’s an easy way for you to add real estate to your portfolio.
Individuals can invest in REITs in a variety of different ways. It could be through purchasing shares of publicly traded REIT stocks, mutual funds and exchange-traded funds.
Different from other ways of real estate investment, REITs entails a wider scope of real estate property types, that includes offices, apartment buildings, warehouses, retail centers, medical facilities, data centers, cell towers, infrastructure and hotels. However, some investors hold multiples types of properties in their portfolios.
In Nigeria, the Investment and Securities Act (ISA) 2007 and the Securities and Exchange Commission Rules 2013 regulates REIT
There are three principal types of REITs, they include;
- Equity REITs
- Mortgage REITs
- Hybrid REITs
Most REITs operate as equity REITs, providing investors with the opportunity to invest in portfolios of income-producing real estate.
Equity REITs are real estate companies that own or manage income producing properties – such as office buildings, shopping centers and apartment buildings – and lease the space to tenants. After paying the expenses associated with operating their properties, equity REITs pay out annually the bulk of the income to their shareholders as dividends. Equity REITs also generate income from the sale of properties.
Investors invest in mortgages on real estate properties and do not purchase, own or manage underlying properties. Though these properties serve as collateral for the loans the mortgage REIT invests in.
Hybrid REITs are a combination of both equity and mortgage REITs. These businesses own and operate real estate properties as well as own commercial property mortgages in their portfolio. The income for hybrid REITs comes from both rent and interest.
Real estate investment trusts, or REITs, can be excellent ways to add income and growth to your portfolio without adding too much risk.
Although, REITs are technically stocks but offset the inherent risk like the all set portfolio.