When you’re trying to build a really good investment plan, it’s smart to look at more than just regular stocks and bonds. One interesting way to get a regular income and spread your money around is something called a REIT. If you’ve heard of REITs but aren’t really sure what they are or how they operate, this article will break it all down for you in plain and simple language.
Even if you mainly invest in Bonds knowing about REITs can help you discover another stable source of returns.
What is a REIT?
Think of a REIT like a company that owns a bunch of properties that make money, like office buildings, shopping centers, warehouses, hotels, and sometimes even apartment complexes.
Basically, a REIT gathers money from lots of different people and uses it to buy and take care of these income-producing properties. Then, the people who invested get a piece of the rent and any profits those properties make.
Here in India, SEBI that keeps an eye on REITs to make sure everything’s open and honest and that investors are protected. Some of the well-known REITs you might hear about in India are Embassy REIT, Mindspace Business Parks REIT, and Brookfield India Real Estate Trust.
How Does a REIT Work?
When you invest in a REIT you are not buying a property directly. Instead you are buying units of the REIT much like you would buy shares of a company. These units are listed on stock exchanges and their prices move based on the performance of the REIT and overall market trends.
REITs earn money by renting out their properties and collecting rent. They are required to distribute at least 90 percent of their rental income to investors. This makes them a good option for people looking for regular income without the hassle of managing real estate themselves.
Why Should You Consider Investing in a REIT?
If you usually invest in Bonds you are already familiar with the idea of regular and steady returns. REITs offer a similar benefit but are linked to real estate instead of debt.
Here are some reasons why REITs are worth considering:
- Regular Income
REITs are required to pay out most of their income to investors. This makes them a good choice for earning stable rental income.
- Diversification
By adding REITs to your portfolio you spread your investments across different asset classes which helps reduce overall risk.
- Liquidity
Unlike physical real estate investments REIT units are traded on stock exchanges. You can buy and sell them easily whenever you need funds.
- Low Entry Cost
Investing in real estate directly requires a lot of money. With REITs you can start with a much smaller amount.
- Professional Management
REITs are managed by experienced professionals who handle property selection leasing maintenance and other day-to-day operations.
How to Invest in a REIT
Investing in a REIT is as simple as investing in shares. You need:
- A trading account and a Demat account.
- A stockbroker or an online platform where you can buy REIT units.
- Some basic research to choose the right REIT based on your investment goals.
You can also invest in REIT mutual funds if you want your money to be spread across different REITs.
Final Thoughts
A REIT is a great way to enjoy the benefits of real estate without the hassle of owning and managing property. It offers regular income professional management and liquidity that traditional real estate investments do not provide.
If you mainly invest in Bonds and are looking to diversify a part of your portfolio REITs can be a smart addition. They combine the stability of real estate with the ease of investing in financial markets making them an ideal option for investors seeking growth and income together.
