What is REIT?
The term “real estate investment trust” sounds complicated, but it’s actually quite simple. It refers to companies that invest in real estate, which means they buy properties and rent them out. These companies are publicly traded on stock exchanges around the world. They pay dividends to shareholders every year, just like any other company.
REITs, which are similar mutual funds, combine the capital of many investors, and found REIT. Through REIT, An Individual investors can now benefit from income from real estate investments without having to invest in, manage, or finance any real estate themselves. It is a type of corporation that invests in real estate. This makes it different than a regular corporation because it has no employees and pays out its profits as dividends to shareholders instead of using those funds to make new investments.
Why Should You Invest In Them?
There are several reasons why investing in REITs might be a good idea for you. First, REITs offer investors exposure to the real estate market without having to actually buy individual properties. Second, REITs pay out dividends to shareholders every quarter. Third, REITs often provide tax benefits to investors. Fourth, REITs are generally considered safe investments. Finally, REITs are regulated by the Stock Exchange so there’s less chance of fraud.
Types of REITs
There are three types of REITs
- Equities REITs. The majority of REITs are equity REITs, which own and operate properties that generate income. Rent is the primary source of income (not by reselling properties).
- Mortgage REITs. Mortgage REITs provide capital to owners and operators of real estate either directly through mortgages and loans or indirectly through the purchase of securities backed by mortgages. The difference between the interest they get on mortgage loans and the cost of funding these loans, or the net interest margin, is what essentially drives their profits. They could be sensitive to rising interest rates because of this model.
- Hybrid REITs. These REITs employ both equity and mortgage REIT investment strategies.
They are further classified by type of trading
- Public REITs. Individual investors can buy and sell shares of public REITs that are listed on a Stock Exchange.
- Non-traded public REITs. Although they are also SEC-registered REITs, they do not trade on regional stock exchanges. They are therefore less liquid than REITs that are traded openly.Nevertheless, because they are not impacted by market movements, they tend to be more stable.
- Individual REITs. These REITs are not listed on national securities exchanges and are not registered with the SEC. Private REITs can typically only be sold to institutional investors.
Pros and Cons
As Pros, REITs are simple to purchase and sell because they often trade on public markets, which helps to offset some of the traditional real estate problems. In terms of performance, REITs provide steady cash flow and enticing risk-adjusted returns. Additionally, a real estate holding can benefit a portfolio since it offers diversification and dividend-based income, and the payouts are frequently bigger than you can get from other investments.
The drawback of REITs is that they don’t provide much in the way of capital growth. They are required by their organizational structure to return 90% of income to investors.Therefore, the REIT can only be invested in to purchase additional holdings with 10% of its taxable income. REIT dividends are taxed like normal income, which is another drawback.
How To Buy A REIT Stock
As previously said, you can buy shares of a REIT that is listed on significant stock markets. Investing in REIT mutual funds or exchange-traded funds is another option (ETF). You must create a brokerage account to do this. To open account in Pakistan Stock Market PSX, Refer to my post: How to Open Account in PSX
The procedure is simple if you choose to open a brokerage account (and you don’t already have one). You’ll provide some of your personal information and basic contact information (e.g., Social Security number and a valid ID). Additional questions regarding your income, profession, and prior investing experience will be posed to you.
You may join up for a broker’s services online, using a mobile app, or in person at a branch, depending on your choice. Utilize the education and research resources at your Portal after your account is set up and accessible online to start evaluating potential REIT investments. A screening tool that can help you hone your research and selection should be included in your brokerage account.
Once you’ve determined which REIT investment best suits your requirements and objectives, you can buy it online. Before you proceed, be sure you are aware of the types of fees your broker may impose as well as any fees or charges related to the investment itself (such as fund expense ratios).
REITs in Pakistan
In 2015, SECP introduced new REIT regulations, however since then, Pakistan has only had one REIT until Dec 2022. First RMC offering rental and development REITs to investors in the nation is Arif Habib Dolmen REIT Management Limited (DCR) . For a housing project in Karachi, a development REIT called Silk Islamic Development REIT was formed last year. The REIT Management Company, along with Yunus Brothers, Arif Habib Group, Liberty Group, and Fatima Group, are partners in this joint venture.
If you intend to invest in this REIT, you may get the most recent information on the Arif Habib Dolmen REIT official website.
The second REIT Launched its IPO in Pakistan Stock Market is Globar Residency REIT (GRR). this REIT is in competion with DCR for its worth.
REITS in US Market
US Market is Heaven of REITs. There are Many REITs in US Market. A List below is available at Wikipedia also shared here. and if you dont know how to buy them in US Market. I have written a blogpost on how to open account in US Stock Market. from there you can easily buy these REITs.