Investing 101: Why You Should Consider Investing in REITs

For any budding investor with big dreams, one of the most common aspirations is to invest in real estate properties. After all, land is something that rarely depreciates. But what if an investor doesn’t have the capital to start investing in real estate, but wants to reap some of the benefits of investing in the industry? Luckily, there is an investment option that allows one to invest in real estate at relatively affordable levels. Let’s talk about Real Estate Investment Trust (REITs).

What is a REIT?


REIT stands for Real Estate Investment Trust and is essentially a company that owns and manages real estate properties. REITs pool the capital of multiple investors to help finance its operations, future acquisitions, and developments in real estate. This system makes it possible for individual investors to earn dividends from real estate investments without having to buy or manage any property themselves. 

How do REITs work?


Real Estate Investment Trusts or REITs pay its investors dividends annually. Under the Philippine REIT Law, REITs are required to distribute 90% of its distributable net income, which it earns primarily from the rental incomes of properties forming part of that REITs’ portfolio.

Why should I consider investing in REITs?


  • Portfolio Diversification

    REITs give the investor exposure to the real estate market, which may have low correlation with stocks and bonds.

  • Affordability

    With REITs, investors who are not able to afford a direct investment into real estate, may invest in these large assets in bite-sized chunks.

  • Stable Dividend Yields

    REITs’ dividend yields may provide a steady income with a possible upside on asset appreciation.

  • Liquidity

    REITs are listed on the stock exchange and are readily tradable.

  • Inflation Hedge

    Lease agreements may cause REITs’ earnings to grow annually from lease escalation clauses. Dividends received, which is a function of distributable net income, may increase over time, providing effective protection against inflation.

  • Transparency and Flexibility

    Being listed provides investors with a measure of protection due to the regulations listed companies are subject to.

Takeaway


For budding investors who plan on investing in the real estate market, and are looking for a periodic stream of cashflow through dividends, a REIT may be the investment instrument for you. Before making any investment decision, always consider your personal financial roadmap, the level of risk you are willing take, and the available information on the issuance which investors are asked to look into prior to investing, among many others.

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