Do you want to invest in rental property with little money?
With just a couple hundreds bucks in your bank, you can be a part owner of a five start hotel. Not possible? Read on…
How to get into property investment?
2 Main ways you can buy a property:
- Buy property Individually. You take up a loan and buy the property as an individual investor. You are the sole owner of the property.
- Buy property by crowd sourcing. You and many other like minded individuals pool your cash together. Using the power of the masses, you will buy the property as a partial owner of the property through an investment trust or REITs.
In this article, we are going to talk about buying a property with power of the masses through REITs.
What is REITs in real estate?
REITs stand for ‘Real Estate Investment Trusts’. REIT is a company that invest in income producing real estates. REIT stocks allow small individual investors to invest in a portfolio of income producing real estate through share ownership with other investors of the REIT.
Buying REITs is the quickest and easiest way of becoming a landlord without the hassle of attending to your tenants.
Why should you consider buying REIT?
REITs are income producing investment that helps to generate cash that put money into your bank.
The income generated are called dividend that is credited to your back account on a periodic basis.
These dividend income are distributed every month, quarter, or bi-yearly depending on the policy of your REITs.
Moreover, you are able to gain an passive rental income without the stress of paying the mortgage, or handling difficult tenant.
Best of all, REITs investing is not just open to the rich and powerful, but to the commoners like us who do not have much money to invest.
Are you excited to learn more about REITs?
PS. As a starter of our REITs article series, we will look into the few different types of REITs available and what are their special characteristics. (Not in order of significance)
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Types of Equity REITs
REIT investing typically falls into one of two major categories:
- Equity REITs
- Mortgage REITs (mREITs)
Generally, when we mention REITs, we mean equity REITs.
Equity REITs earn it’s income through dividend generated by long-term ownership of properties in different types of industry.
1. Commercial Reits
Commercial REIT are also sometimes known as Office REIT. These real estate properties are primarily rented to business owners as offices. Commercial REIT usually have a number of office buildings under its care.
Many big companies such as FaceBook, Google, Twitter have their office residing in one of the properties own and managed by these commercial REIT.
If Facebook is the tenant of the commercial REIT you just brought. You my friend is the landlord of Facebook.
Some other tenant of office space are people who wants a co-working spaces. Currently, we see an increasing trends on the amount of people renting a co-working space.
The offices are usually equip with many facilities that only big companies with huge budget can afford. These office are especially attractive for smaller companies and startups which have an limited budget.
This type of working space have the benefits of maximizing the utility of the office space. In additional, it supports a culture of innovation and encourages communication between tenants to sharing their ideas.
What to take note when buying commercial REITs?
As the culture of office space uptake is changing.
Many companies are adapting to increase focus on having employees with a balance lifestyle and allows work-from-home.
Hybrid work arrangement have become increasingly popular amount many companies.
Currently, there is an increase of popularity of offices outside CBD area.
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2. Healthcare Reits
Healthcare REITs own and manage healthcare related real estate and generate their income from tenants. Properties own by a Healthcare REIT are; hospitals, clinics, nursing homes and assisted living properties.
The clinics you found in the streets near your home might just be an example of the Healthcare REITs.
What do you, do when you get sick?
You see a doctor!
Healthcare is the basic necessity for every individual!
You can be old in your 80’s, healthy age of 20’s or just an infant, you will need healthcare at some point of your life.
This makes healthcare REITs one of the best defensive REITs, resilient to the market conditions.
With an aging population where people live longer and are better access to medical treatment. The healthcare sector will probably see a rise in demand and proper infrastructure will have to be build to support the medical facilities.
What to take note when buying Healthcare REITs?
Healthcare REITs might not be exciting, but it might be a gold mine for the years to come!
As the average life expectancy of the world increases, more people will need good healthcare.
Healthcare REITs are generally stable defensive investment with minimal fluctuation in price.
If you are an investor with lower risk tolerance, this might just be what you are looking for.
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3. Hospitality Reits
Hospitality REITs owns, acquires and manages real estate properties that provides short to long term stay for individuals. Hospitality REITs owns properties such as hotels, motels, resorts and serviced apartments.
Remember that 5-Star hotel you stayed last summer for over $500 per night?
How about that majestic hotel you drive pass everyday on your way to work.
Do you want to be a owner of that amazing hotel, with personalized Jacuzzi in each room, facing the the white sandy beach where crystal clear waves from the ocean orchestrate the beautiful melody of the sea?
Hospitality REITs make your dream possible.
With the constant stream of tourists coming into the country, the hospitality industry looks to be very attractive. And as an investor you may want to pop a champagne or two to celebrate.
However, while some REITs diversify their portfolio by having properties all over the world. Hotels own by Hospitality REITs are almost completely dependent on tourist arrivals. This lead to high volatility in the Hotel Business.
At the peak season of the holiday, even that hotel which you never knew it exist may have a full booking. At the rest of the year, hotel might have to give promotions after promotions just to fill half their rooms with tenants.
What to take note when buying Hospitality REITs?
Hospitality REITs is one of those REITs which is most affected by the law of supply and demand.
When there is a pandemic or events that affect tourism, hospitality REITs will be the first to get impacted.
As an investor, you will need to do some research on the demand before you buy any of these hospitality REITs.
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4. Industrial Reits
Industrial REITs own and manage spaces equip with specialized facilities for industrial use. Industrial REITs rent these spaces to tenant for rental income. Often, industrial REITs owns facilities such as warehouses, logistic centers, manufacturing centers and business parks.
Some examples of industrial REITS are the manufacturing centers and logistic centers located in Tuas or rural parts of the country.
Companies such as Nestle® and Johnson and Johnson® rent these manufacturing centers to manufacture the products we commonly use and consume.
Driven by the manufacturing sector and driving the GDP of the country, these industrial REITs helps to get people employed and goods manufactured.
When assessing industrial REITs, it is important for investors to look at their occupancy rate and their location.
What to take note when buying Industrial REITs?
With the right law and policy of a country as well as the suitable pool of talents, it can attract big MNCs such as Novartis® and Apple® to setup manufacturing sites in the country.
Country’s laws and policy will help to drive the rise and fall of industrial REITs as it will greatly determine if you will have any tenant.
Nonetheless, industrial REITs can be very attractive to investors.
With a lease of usually 10 to 30 years, these REITs provide a stable income for the investors.
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5. Retail Reits
Retail REIT own and manage retail real estate. They rent out retail space to tenant to generate an income. Retail REITs owns properties such as; large regional malls, shopping centers, shopping district and general retail spaces.
Retail REITs is a special type of REIT that most female investors will have an unfair advantages over the boys.
Because Retail REIT owns the shopping centers. Ladies who loves shopping much more than boys, know every single inch of the shopping center.
A lady can always tells you, “Which shopping center have the most people, which place sells the best dessert, or which shopping center just open”. The girls know more about the latest trends and shopping, more than we boys knows about football.
Almost all shopping centers that you visited last weekend are most probably owned by Retail REIT.
Retail REITs are one of the most popular form of REITs. Comparatively, a retail REITs is much easier to understand.
- Retail REITs rent out shop space
- Retail REITs collect rent periodically
As an investor, our research is basically do our site inspection by shopping at our favorite shopping center.
What we want to look for is simply 2 things:
- Observing the operations of the shopping center’s management.
- Observe the foot traffic.
Some other metrics we want to know is the occupancy rate, as well as turnovers rates. These are key components to consider when looking at Retail REITs.
What to take note when buying Retail REITs?
The next 10 to 20 years will be quite challenging for Retail REITs.
Retail REITs might be risky because with the advance in eCommerce and people getting more comfortable in buying items online.
Nonetheless, there are still many people who still prefer to shop at the malls, or have a meal in a fancy restaurant.
Retail REIT should still be an good investment for the next few years, but in these changing times, we can never be sure.
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6. Residential Reits
Residential REIT owns and manages a portfolio of affordable rental homes, apartments, student housing or residential buildings. A residential REIT is the most similar to being a conventional landlord, minus the hassle of managing the tenant and the stress of paying the mortgages.
The main factor that affect this REIT is to consider how affordable are the homes are in the target area.
If homes are very affordable, more people will tend to buy then to rent a place to stay.
When home prices are extremely high, the number of people who are forced to rent is higher. This increase the rental prices. Thus, most major residential REITs focus on the CBD areas where housing prices are high.
What to take note when buying Residential REITs?
Residential REIT is one of a few which have a higher dependence on the law of demand and supply.
Cities with growing economies will attract more people to find jobs. This will bring a higher demand for rental homes, thus your investment return as a Residential REIT Investor.
Knowing the trend on the growth in population in the city is essential, when an investor is considering on investing in residential REITs.
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Real Estate Investment Trusts (REITs) Exchange Traded Funds (ETFs) are ETFs that invest their assets in REIT stocks and related derivatives. REITs ETFs are passively managed basket of REITs, shares of which are sold on an exchange.
REITs ETF is the holy-grail of REITs investing diversification.
Not only each REIT will have a wide portfolio of properties, the right REITs ETF will have properties of a wide range of industries.
Each and every property are professionally manages and will bring you a yearly, quarterly or even a monthly dividend income.
Why REITs ETF is probably the best REITs for beginners investors?
REITs ETF makes investing in REITs simpler and easier by saving you the trouble of picking and choosing which REITs to invest.
Furthermore, you are highly diversified thus you will not be exposed to too much risk in compared to a single REIT.
As an added bonus, an ETF is also less volatile which does not require you to monitor its performance closely.
REITs ETF is the perfect investment for lazy income investors.
With an current distribution yield of 5.27% and potential growth of the ETF itself. REITs ETF is not too shabby for consideration.
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My Take Away
There are generally 7 types of REITs
- Commercial REIT
- Healthcare REIT
- Hospitality REIT
- Industrial REIT
- Residential REIT
- Retail REIT
- REITs ETF
REITs like all investment, there are a certain level of risk.
Some REITs are more volatile, while others are more defensive. There are different factors that affect how each types of REITs works.
Some REITs are easier for us to do our research, while others may requires some digging for information.
Some tenants of REITs are for companies, others are individuals like you and me.
Buy Low, Sell High is the Key to Investing.
But knowing when to buy or sell is the Key to success.
Just knowing the types of REITs do not automatically makes you a great investor.
REITs is one of the many investing vehicles that you can take to success. You have to learn constantly and understand the game of investing.
Here are some resources what will help in guiding you to your success.
What guides me in my journey are some of the many books I read for the past years. There also many words of wisdom said by those who have achieve what we want to achieve and to learn from them is the shortcut to our goals.
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Disclaimer: We are not your financial adviser or lawyer, information found in our website are our opinions and should be used for entertainment purpose only. You should always ask your financial adviser or lawyer for any financial or law related advice.