Owning real estate property is a dream for almost every person. But it needs a lot of monetary investment that is not affordable for many people. However, there is an option where you can invest in real estate at an affordable amount via Real Estate Investment Trusts (REITs).
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What are REITs (Real Estate Investment Trusts)?
A REIT is a company that owns, operates, or finances income-producing real estate. Apartment complexes, data centers, hotels, healthcare facilities, infrastructure (fiber cables, cell towers, and energy pipelines), office buildings, retail centers, self-storage, and warehouses are examples of properties under a REIT portfolio.
It is similar to mutual funds and provides investors with a liquid way to get a stake in real estate. It is a type of asset that offers regular income, portfolio diversification, and long-term capital appreciation to all large and small types of investors. Many REITs openly trade on major stock exchanges, and investors can buy and sell them like stocks at any time during the trading day.
Types of REITs
There are 3 types of REITs:-
- Equity
It involves the operation and management of commercial properties that generate money. And rents are a common source of income in this area.
- Mortgage
It is also known as mREITs. They don’t invest in real estate directly, rather they lease real estate and make money from the interest on these assets.
- Hybrid
These REITs use both equity and mortgage REIT investment strategies.
How do REITs work?
The REIT industry helps to diversify the investor’s portfolio which offers them a chance to gain exposure to real estate. The purpose of REITs is to distribute dividends produced by capital gains from the sale of commercial assets to investors. While physical properties have liquidation issues but it provides easy liquidation of the investment.
Advantages of REITs
- Easy to buy and sell.
- It can be traded on the stock exchange.
- Regulated by SEBI.
- It provides stable cash flow through dividends.
- It gives attractive risk-adjusted returns.
Disadvantages of REITs
- Dividends are subject to standard income taxation.
- It offers low growth.
- Involves market-linked risk.
- It may include high maintenance fees and other additional charges.
If you want to diversify your investment in real estate then you can consider this to invest your money with a regular income facility. But you should always first analyze your risk appetite before investing in any asset or scheme.
