It is no secret that commercial investments are lucrative from the perspective of a steady influx of revenue. As a result, almost every business owner has a portfolio of several small-to-large-sized investments, of which commercial properties form the foundation. Moreover, rarely is there ever a shortage of commercial investment properties for sale in any market because of the constant rate of growth and area progress.
An important element of commercial investments is real estate investments trusts. They are responsible for the actual ownership, operation, and financing of the real estate. Business owners regularly invest in REITs in various capacities. However, why would they invest in REITs? In essence, REITs have provided competitive total returns based on a consistently significant, steady dividend income and long-term capital appreciation.
Why invest in REITs?
- Exposure: The main reason companies should invest in REITs is the exposure they offer in terms of real estate—commercial, residential, and retail—without actually directly buying the individual properties, allowing individual investors and smaller companies to invest in these kinds of real estate without the financial commitment for due diligence.
- Expanding your reach and diversifying your portfolio: REITs offer a security in real estate investments because they are not directly tied to and unaffected by the variations in the traditional markets. In this way, when the market is on a low, REITs can still bolster your portfolio.
- High dividends: Since REITs are required to pay out 90% of their taxable income to their shareholders, this makes them a good source of dividends, especially with the low interest rates.
How to invest in REITs?
An individual might purchase shares in an REIT. Just like any other public stock listed on the major stock exchanges, investors might buy shares in a REIT mutual fund or in an exchange-traded fund. Additionally, potential investors might also choose to invest in public non-listed and private real estate investments trusts. A financial consultant or investment advisor can analyze the investor’s financial objectives and recommend appropriate REIT investments.
What are the different types of REITs to invest in?
- Equity REITs: These are publicly traded equity REITs that own or operate revenue-producing real estates like office buildings and apartments.
- mREITs: Mortgage REITs provide the financing for revenue-producing real estate by buying or creating opportunities for mortgages and mortgage-backed securities and earning revenue on the investments.
- Private REITs: These particular REITs are not listed on national stock exchanges and are thus exempt from SEC registration.
- Public non-listed REITs: Though these REITS are registered on the SEC, they don’t trade on the national stock exchanges.
Also Read: 5 Types of REITs and How to Invest in Them
How does a REIT work?
A REIT works in the form of a trust registered with the stock market regulator. The stakeholders involved are:
- Sponsor: the one who forms the REIT. Real estate owned by them is transferred to the REIT.
- Trustee: An individual employed by the sponsor and holds the assets in place of the unitholders.
- Manager: Responsible for managing the REIT assets and making investment decisions.
- Unitholders: Beneficiaries of the trust that become indirect holders of the REIT assets in the process of subscribing to the units of the REIT.
- Independent valuer: Individual employed by the REIT who independently values the assets owned by the said REIT at periodical intervals.
Real estate developers often use a REIT structure to raise capital from the market to bring liquidity to their operations. This is as an alternative to borrowings.
At Wealthbci, we aim on providing you with informed, well-researched investments, earning you a steady inflow of income. Our investment opportunities provides consistent cash flows and double-digit returns. Additionally, we also plan a 3-to 7-year exit strategy but often hold some properties for long-term cash flow. So book an appointment with us now to discover your next lucrative investment!!