What is REIT? Is it a smart investment choice?

24 November 2020 3:12:PM

are-reits-good-long-term-1-compressed

Hello readers, Have you ever had a thought about what could smart investment choice? And how to get a better ROI on your invested money? So here is the answer The REIT. Now What is REIT? so REIT stands for a Real estate investment trust.  This makes it possible for private owners, without having to purchase, maintain, or fund the property themselves, to collect dividends from real estate investments. 

REITs encourage anyone through the buying of individual business securities or through a mutual fund or exchange-traded fund (ETF), to invest in portfolios of real estate investments the same way they invest in other sectors. Without necessarily needing to go out and purchase, maintain or fund land, the owners of a REIT receive a share of the profits earned by real estate investment.

What is REIT? 

A real estate investment trust (REIT) is a corporation that maintains, manages, or funds real estate that produces revenue. REITs, modeled after mutual funds, pool the money of multiple investors. This makes it possible for private owners, without having to purchase, maintain, or fund the property themselves, to collect dividends from real estate investments.

REITs invest in most types of real estate stock, including apartment complexes, mobile towers, data centers, hospitals, medical facilities, offices, warehouses, and shopping centers.

Many REITs are publicly exchanged on major securities markets, and during the trading day, investors will acquire and sell them like stocks.

Fact -

Embassy Office Parks, India's first listed REIT, has gained 50% since listing in March 2019 as against a 10% gain in the Nifty Realty Index and a 5% return of the benchmark Nifty 50.

What are certain peculiar properties that make a REIT attractive?

  1. A REIT is required to pay at least 90% of the taxable income as a dividend.
  2. Accrue a minimum of 75% of gross income from mortgage interest or rents.
  3. A minimum of 95% of REITs total income should be invested.
  4. Less than 5 individuals should not have held 50% of its share during each taxable year.
  5. 80 percent of the investment must be made in income-generating assets and only 20 percent of the total investment can be made in under-construction assets.

Why should you invest in a REIT?

  1. Taxation - REITs and InvITs were not required to pay any DDT at the Special Purpose Vehicle (‘SPV’) as well as the unitholder level. Under the new classical system of dividend taxation, unitholders shall have to pay tax on dividends if SPV opts for the new concessional rate of tax at 25.2%. In the case where the concessional rate is not opted by the SPV, dividend remains to be exempted in the hands of unitholders. This would directly impact yeilds for the REITs and InvITs.
  2. Steady dividend income and capital appreciation
  3. Benefits of diversification of assets
  4. Steady Cash Flow – As dividend is to be paid quarterly to investors
  5. Potential for REITs to expand the assets and increase yield
  6. Inflation proof – REITs rental income will increase as inflation increases, providing comfort to investors

 

What are some of the REITs already listed you can invest in?

  1. Embassy Office Parks REIT
  2. Mindspace Business Parks REIT

This was all about What is REIT and why you should choose it as a smart investment option. To invest contact us (CLICK HERE

Source – Investopedia, LiveMint, Groww