Real Estate

Why invest in Real Estate Investment Trusts?

Overview

A Real Estate Investment Trust (REIT) is a trust specifically set-up to invest in real estate. REITs invest their capital in existing real estate projects like shopping malls, industry buildings or commercial buildings and they also buy into or finance upcoming real estate projects.

These real estate assets are then leased out or put to rent, thereby generating income for the REIT. REITs were first setup in the 1960s to reduce the incidence of taxation on real estate investments.

Since then, they have become immensely popular with investors all over the world. Most REITs are publicly traded on global stock markets like other stocks and mutual funds while a few are unlisted and privately held.

Taking into consideration the widespread popularity enjoyed by the REITs as an asset class, governments across the world have come up with some very REIT-friendly tax laws and legislation. As a result, most REITs today have to pay no income-tax. Instead, they must pass on at least 90% of their income to their investors in the form of cash dividends. This is the reason why if you know how to invest in REITs appropriately, it can be a fantastic form of passive income for you!

Additionally, REITs are structured to mimic equity mutual funds and holding companies, giving small and mid-sized investors a chance to participate in large real-estate projects in a safe and methodical manner.

Key indicators to consider before investing

  • Interest Rates
  • Employment situation
  • Consumer Confidence
  • Among other factors

Interest Rate (sharply rising is bearish) and Employment Situation (improving is bullish)

 

Vanguard’s VNQ vs Consumer Confidence (rising is bullish)

 

Office vacancy (declining is bullish)

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