Real estate investments are attractive, but the skills and resources needed to start and build a profitable portfolio are challenging. Many investors fear the required capital, property ownership, and management burden. What if I told you this doesn’t have to be the case? What if you could easily access the real estate market like the stock market? That’s what real estate investment trusts (REITs) are all about.
REITs are much like a bridge between stocks and real estate investments. They offer a unique way to access and invest in the real estate industry while enjoying the benefits of stores. You get the best of both worlds since REITs are traded like stocks on major exchanges. You’ll receive dividend income while enjoying the potential for capital appreciation that makes real estate an irresistible investment arena.
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The critical difference is that REITs entail investment in income-producing real estate assets, unlike stocks, mainly designed to help companies raise more operational capital. With REITs, your investment is directed into income-generating assets such as commercial and residential properties like hotels, office buildings, malls, warehouses, complexes, and apartments like the competitive furnished options on Hauzisha.
Are you still on the fence in regards to REITs? Let’s look at some notable benefits that make REITs an excellent investment strategy.
Income and governance
Among the primary allure of real estate investments is the income flow. This is especially true with rental property investments that promise steady income. REITs provide the same regular income flow, which benefits those looking to live off their investment.
Relevant bodies regulate REITs; this is the CMA (Capital Markets Authority) in Kenya. Under CMA’s regulations, REITs must distribute at least 80% of taxable income to shareholders, which is done in the form of dividends.
The steady income and adherence to the securities market regulators’ requirements mean REITs provide a safe way to tap into the real estate market. Inventors can rest assured that REITs operate to high standards, including financial reporting and information disclosure, as stipulated by the CMA’s regulations.
Among the notable hiccups associated with real estate investments is liquidity. It takes time to sell a property, which can prove inconvenient when you want access to your investment. Liquidity is among the top appeals of stocks, which you enjoy with REITs. You’ll still invest in real estate, not tied to the illiquid and immovable downsides. You’ll easily trade REITs on the stock exchange, meaning they are highly liquid. As investors, you can buy and sell as you prefer, much like stocks, which provides flexibility and easy access to your capital.
Less capital intensive
Is capital restrain the main reason you are yet to explore your real estate investment desires? Real estate investment can be capital-intensive, mainly when you are focused on specific properties like high-end rental apartments with promising returns. REITs provide a way to navigate this capital challenge. You’ll find diverse options, allowing you to pick the one in line with your budget.
Capital appreciation potential
Potential asset value appreciation is a notable aspect that makes real estate a lucrative investment industry. REITs value has a similar impact. The appreciation potential means you will likely enjoy additional returns on your investment. This is more so considering the professional REITs management.
Professional REIT management means every decision, such as development, acquisition, and daily management, is done by an experienced real estate expert. This translates to efficient property operations, which are more likely to deliver steady income and value appreciation. As a shareholder, you stand a chance to grow your capital, and while not as fast, it is more dependable.
A diversification path
Diversification is vital to secure investment quests. The strategy helps you cushion your investments against unforeseen problems. As you invest in REITs, you can pick an option that will help diversify your portfolio without additional work like individual property management. Professionally managed REITs typically include diverse properties, cushioning your investment against various concerns. Even better, REITs come in different forms, including equity/income REITs (I-RETs), mortgage REITs (M-REITs), and development RETs (DREITs), further providing more diversification options.
Every investor strives to lower the tax burden. It is an intelligent move that helps you pocket more from your investments. REITs provide a tax-wise way to invest since they are exempt from income tax, value-added tax, stamp duty, and, in some cases, capital gains. The primary tax that applies is withholding tax on dividends and interest income.
REITs provide an innovative solution for investors looking to dive into real estate and still enjoy the many benefits associated with stocks. Nonetheless, it is advisable to devise a solid strategy before entering the lucrative investment path. While enjoying the best of both worlds seems irresistible, there are challenges you should be aware of to make wise REIT investment decisions.
For starters, ensure you thoroughly vet the company. Just because REITs are under CMA regulation doesn’t mean there aren’t a few rotten companies out there targeting unsuspecting investors. Therefore, it is wise to do your due diligence, including considering the company’s financial performance and properties on its portfolio, checking its management team, and establishing its competitiveness.
Before you make the final decision, you should also consider the type of REITs to invest in. This is considering your situation, especially risk tolerance and goals. It is an essential check since, while REITs offer notable real estate investment benefits, there are risks. Concerns like changing interest rates, market volatility, and economic conditions can impact REITs’ performance differently.
A professional consultation is always recommended as you weigh your situation. An advisor can assess and paint a better picture of your finances and how well you can tolerate risks, allowing you to make better REIT investment decisions and enjoy long-term success.
If you’re looking for a way to invest in real estate indirectly, in a form that resembles traditional stocks, then REIT is your answer. You tap into real estate without the ownership burden while enjoying the stocks’ flexibility and liquidity features.