A REIT - Real Estate Investment Trust - is very similar to an investment fund, but with a focus on real estate instead of stocks/bonds.
In this post, we take an in-depth look at what a REIT is, the pros and cons of investing in them, and provide examples of alternative real estate investment opportunities.
As mentioned, a REIT is a fund whose assets consist largely of real estate. The business model for a REIT is relatively simple. The fund buys properties with the intention of renting them out and charging rent, with the profits being paid out to shareholders in the form of dividends.
According to Investopedia, a REIT (by US standards) must meet a number of conditions in order to qualify as a REIT:
The above are the US requirements for qualifying as a REIT. However, there are also REITs in Europe, for example, where the conditions may be different.
Before deciding whether or not to invest in a REIT, it's a good idea to consider the potential pros and cons.
Among the various benefits of investing in REITs, we can mention:
By investing in REITs, the investor gets a spread towards real estate, which can help diversify their investment portfolio.
Many REITs are publicly listed, which means they can be freely traded by private investors as securities. This also means that they can be bought and sold more easily than if you had invested your money in an actual property, for example.
REITs pay regular dividends to shareholders, which can be advantageous for certain investors seeking regular dividend payments for their investment portfolio.
It is rare that the average private investor has the capital to invest in real estate with the aim of generating returns. REITs represent an opportunity to enter this market.
Among the various disadvantages of investing in REITs, we can mention:
Because REITs offer regular dividend payments, the value of the company itself will not increase in the same way as "ordinary" shares, because the value is paid out as regular dividends rather than capital appreciation. This can be an important point for your personal investment strategy.
As with other types of investment funds, there are management costs associated with REITs. These costs can affect your overall return, which is something you can consider.
While REITs are an easier way for the average investor to enter the real estate investment market, it's important to remember that the fund still has ultimate control over the investments. Conversely, if you were the owner of a property yourself, you would naturally have a greater degree of control over your investment.
REITs aren't the only way you can enter the real estate market. There is, of course, the obvious option of buying a property and then renting it out.
And, as mentioned above, it takes a lot of capital to buy the property itself, and then you also have to manage - or pay for - the administration of the property and collect rent.
But you can also look towards crowdlending as an opportunity to make a return in the real estate industry.
Here you pool your money with other investors to lend it to a developer, who then uses the money to complete the real estate project.
Your loan to the developer comes with interest that makes up your return. The interest rate is predefined in the project, so you know from the start what you can expect from your investment. See our projects here.
Crowdlending through Fundbricks is thus an opportunity to generate a return in the real estate industry without having to buy a property yourself - and without having to buy, for example, US REIT shares.
We follow the money laundering guidelines.
Select the amount you want to lend for each property project.
Receive cash repayment of your loan as well as returns when the property project is completed.
WHAT ARE YOU WAITING FOR?
Historical returns are no guarantee of future returns. The money you lend to projects can therefore increase or decrease in value and there is no guarantee that you will get back the full amount lent.
READ MORE
