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Real estate investment trusts or ‘REITs’ provide you with a unique way to invest in property. The main selling point is that you don’t have to buy a house or become a landlord.
REITs have become a portfolio staple for savvy income investors over the past decade. But what exactly are they and how can you invest in them? This guide will explain how they work and why REIT shares can be such a useful investment to hold onto.
Keep reading to find out all the details on how you can easily become a property mogul, or click on a link to jump straight to a section…
This is a company that owns and manages various types of properties. Because REITs are set up as a normal company, it means you can buy shares just like you would with other stocks.
Owning large pieces of residential and commercial real estate is often reserved for those with deep pockets. But, REITs provide a much simpler way for ordinary investors to become property owners.
One of the best things about them is that you don’t need a mortgage or piles of cash to invest.
REITs have been a popular way to invest in property since the 1960s in the US. Here in Britain, we’re a little bit behind and they only became accessible through the London Stock Exchange (LSE) since 2007.
The unique structure provides some exciting opportunities for investors.
There are certain criteria that a stock has to meet to be classified as a REIT in the UK, the company must:
Just like there’s a flavour of ice-cream for just about everyone, there’s probably a REIT too.
REITs invest in all sorts of property and some of the most popular and lucrative areas include:
Jon Kelly from Boardwalk REIT shares some insights on rental property REITs for new investors: “Some of the advantages of residential REITs is that they are typically more affordable and require a lower minimum investment, making them more accessible for entry-level investors. They also offer a more stable and predictable cash flow, making it an attractive option for those looking for reliable investment option during economic downturns.”
Usually, REIT investments fall into two main categories – equity or mortgage:
They certainly can be, though a lot will obviously depend on how well the property market performs
At the time of writing on 31 May 2023, Nationwide’s trusted House Price Index suggests property prices may be falling. In March the index reported prices were 3.5% lower than a year ago before stabilising a bit in April.
However, putting aside the recent performance of the housing market, it’s worth knowing that if you’re interested in buying a REIT there are a lot of potential advantages.
Let’s take a look at why you might wish to consider investing in property through a REIT…
Because you can buy and sell shares on exchanges, this makes it a fairly liquid investment. And much easier to own than physical property.
With a REIT, you get to own shares in a portfolio containing many properties, without having to shell out loads of money for the opportunity.
Investing in property and real estate can be a great way to hedge against inflation and give your investment portfolio some extra oomph with brick and mortar.
Even if you’re already a landlord or a wannabe property mogul, REITs allow you to access complex areas of real estate that you’d struggle to invest in by yourself.
Some of the properties owned by REITs are bonafide moneymakers and you get a share of the profits. Plenty of REITs have excellent track records for rewarding investors with a steady income of dividends.
This particular way of investing isn’t without its drawbacks. Here’s an explanation of some of the major points you need to be aware of:
You’ll need to make sure you’re set up with a brokerage account that gives you access to a wide range of investing options.
REITs are fairly mainstream, but not every broker will let you invest. Using a multi-asset platform like eToro can be an excellent way to get exposure to lots of different types of investments.
If opening an account seems too confusing, here’s a walkthrough on how to open an account and buy shares with eToro.
Once you’re set up on a platform, here’s a step-by-step guide for buying REITs:
You can also use certain stocks and shares ISAs to invest in and hold REITs. Doing this will help protect any growth or dividend income from tax. Meaning you get to keep more of the profit!
Many online brokers offer self-select ISA packages so if you open one of those you can slot in your REIT as and when you invest in it.
Although REITs can be an effective way to own some property and generate income, it’s still vital you do plenty of research before picking a REIT to invest in.
Finding the best REITs can be tricky. If you’d like some broad exposure at a cheap cost, you may wish to look into buying an exchange-traded fund (ETF).
These funds can give you access to multiple REITs, even hundreds, with one single investment.
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This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.