Investments in real estate investment trusts (REITs)

A real estate investment trust is a company that invests the majority of its capital in real estate. At the same time, such companies can also own and manage real estate, which generates regular income.

The main feature of investing in REITs is the high liquidity of assets. Company shares are easy to sell, unlike the real estate itself.

What assets do REITs own and how do they make money?

REITs can invest in very different properties. Most often this is:

• offices;
• multi-apartment residential buildings;
• medical institutions;
• infrastructure facilities;
• hotels;
• data centers and much more.

Many funds specialize in one type of property. However, truly large companies own completely different assets, which allows them to diversify their own risks.

The operating principle of REITs is as simple as possible. The company buys or rents premises in order to become a landlord for another client, thereby receiving income. Depending on the volume of the latter, the size of dividends for holders of company shares depends.

Main types of REITs

There are 4 main types of REITs:

1. Equity – management funds that are owners or managers of real estate, and they receive income from this activity;
2. mREITs – finance real estate by organizing mortgages, loans, and can also rent out premises;
3. Public non-listed - public companies that are not registered on the stock exchange, that is, their shares cannot be purchased on national exchanges.
4. Private – private investment funds whose shares are not traded on an exchange.

How to Identify a Real Estate Investment Trust REIT

Defining a REIT is quite simple. The company must meet the following basic criteria:

1. 75% of investments are made in real estate.
2. More than 75% of revenue is derived from the operation of real estate assets.
3. More than 90% of income is paid out in the form of dividends to company owners and shareholders.
4. Registration as a legal entity.
5. More than 100 shareholders.

How to invest in REITs

An ordinary investor can invest in a real estate investment fund with the help of a counterparty - a broker. Such, for example, is the company FX Standard. However, there are many other brokers. In order to buy shares, you must open an account, top up the deposit account and give the appropriate order to the broker for execution.

Opportunities and risks when investing 

When investing in stocks, an investor faces both opportunities and risks. The main advantages of such an investment solution include:

1. Opportunity to invest in real estate with a small amount of money.
2. Possibility to choose a fund depending on the property.
3. High liquidity of the asset. Shares can easily be sold on the stock exchange.
4. There is no need to pay for facility maintenance.
5. The dividend amount is one of the largest on the market.

If we talk about the shortcomings, they look like this:

1. Little potential for growth. The company's shares are not characterized by volatility, their price is growing slowly.
2. Lack of control over real estate. After all, the objects belong to the company, not the investors.
3. High taxation. You will have to pay income tax on dividends received.

Investing in REITs is a good option if you are interested in a reliable asset for a long period. However, this solution also has its drawbacks.