Do you what is REITS abbreviated for? Know everything about REITs and its impact in 2021. As it may play a major role for those interested in real estate.
The real estate sector is advancing beyond just an investment. As normally it was considered that the real estate properties are purchased for a long-term investment. Moreover, this could be in any form such as shops, flats or plots, etc.
Not to forget that such investment comes with a lot of hassle at times. As an individual faces issues to get clearances. In addition, not getting paid on time by the tenants. Over the years the resale value also gets affected.
But over a few years, this scenario is changing in the real estate sector. Moreover, a new strategy to invest in commercial Real Estate has developed through Real Estate Investment Trust (REIT).
REITs enable investors to get direction to Real Estate without having to buy or regulate properties by themselves.
In this article, we will discuss everything about REITs & its impact in 2021. Furthermore, focusing on its types and how it helps to increase personal capital.
What is REITs ?
REITs are abbreviated to Real Estate Investment Trusts. There are many real estate companies that own or to be precise finance income-producing real estate. For all the range of property sectors.
Moreover, these real estate companies have to obey quite a number of provisions to qualify as REITs. Major REITs trade on stock exchanges, and they mostly offer multiple advantages to the investors.
For example, a mutual fund, banks, and hedge funds, etc. That helps valuable real estate to yield the opportunity. To acquire dividend-based income along with total returns. Most importantly, it helps common communities grow and succeed.
The company’s with REITs allow anyone to make investments in available portfolios of real estate assets. Just the way they invest in any other industries.
Therefore, by purchasing a particular company’s mutual fund, stock, or exchange-traded fund (ETF). Here is the main benefit for the stockholders of a REIT. They earn a share of the income generated without really having to go out and buy. Also, to manage or finance the property.
This certainly saves your time and energy in investing tangible property. And maintaining it to get good returns. It helps to make an investment that gives many choices. That will give you excellent deals for the same.
Let’s see some of the largest Real Estate Investment Trusts that are available. Impacting the economic and developmental growth in real estate sector.
1. American Tower
It is one of the well-known and largest REIT currently in the market. American Tower targets communication sites. Moreover, it owns and manages many communications sites.
Most importantly, REIT of American Tower has prospered significantly. It has more than 160,000 sites across the world under its portfolios. The major revenue is produced outside the United States.
2. Simon Property Group
It owns and operates shopping malls and has many outlet companies. Along with managing multiple real estate properties like hotels, flats, etc.
3. Crown Castle
Crown Castle has seen rapid growth in mobile data transfer. In addition, with the rollout of 5G networks. Accelerating from 4G, the mobile has observed tremendous data traffic in through few past years. Consequently, it has a portfolio of over 40,000 communications towers and different assets in the U.S.
Prologis deals with logistics in real estate. Having a big portfolio of large-scale centers, distribution services, and warehouses. Typically, shifting from a traditional to an e-commerce platform. Due to pandemic the there is growth in sales due to the digitalization of business.
5. Public Storage
Public Storage is the topmost company in the self-storage world. It has more than 2,300 properties in the countries like U.S. and Europe. Moreover, it also has a massive market capitalization.
Self-storage can be outstanding for real estate. Furthermore, it has low operational expenses and maintenance. If we compare it to multiple commercial real estate companies.
How many types of REITs are there?
REITs mainly are categorized into two categories that are equity and mortgage. Let’s see how equity REIT’s works.
Equity REITS – If you notice then you will find most of the REITs are equity REITs. And are publicly traded equity REITs. The main advantage is Equity REITs own and operates income-producing real estate stocks. And so the revenue received is to through rents and not by actually reselling the available properties.
Now let’s about Mortgage REITs in detail.
Mortgage REIT’s – It lends money to owners of the real estate. By the means of mortgages and loans. These are indirectly sourced through the acquisition of mortgages that backed by securities.
Moreover, their earnings are generated especially by the net interest margin. Therefore, in between the interest they earn on mortgage loans. And the cost of funding these loans. This category makes the owners more conscious of the increased interest rate. It mostly holds mortgages on real property
There are other classification after the two main categories of REITs.
Hybrid REITs – It uses the investment strategies of the above-mentioned REITS. That is equity and mortgage REITs. So that they target both the investors at the same time.
Moreover, this can be even classified on the bases of how purchases for the shares are made and held by the investors.
Public Non-Traded REITs. This type of REIT is registered with the SEC(Security and exchange commission) but is not allowed to trade on national securities exchanges. This is more reliable because they’re not mostly subject to market instabilities.
Furthermore, shares of these are listed under the national securities exchange. Where the individual investors can buy and sell the shares as and when required.
Private REITs –These shares are privately sold between institutional investors. Moreover, they can’t trade on national security exchanges (SEC) registration.
How do REITs make money?
As we know that every institution needs capital for its smooth functioning. And REITs (real estate investment trust) are not an exception. Companies’ offerings REITS also need capital.
Most importantly, it is just like selling any other stock to the public. Especially those who are investing in the firm’s income-generating real estate.
Therefore, those who buy IPOs (initial public offering) are investing in real estate which is managed like a stock portfolio. Later on, these external funds are beneficial to increase capital. That ultimately promotes the REIT to buy real estate.
Most importantly, REITs generate income of which 90 percent of the taxable income is compulsory to be distributed to the shareholders on a daily basis.
REITs earns money from the properties the company is investing by renting, leasing or selling them.
The team of shareholders selects the board of directors. They are the crucial group of members to take important decisions for the company.
Let’s drive deep looking at the methods used for measuring of REITS.
So in general there are two methods observed. One is FFO (Funds From Operations) and the other is GAAP (Generally Accepted Accounting Principles)
FFO is a method that uses a calculation of net income derived from rent, sales of properties. Mainly, after subtracting the expenditure of administration and financing.
GAAP comes into the picture while calculating the net income. The issue in GAAP calculations is that the depreciation of assets is presumed to be predictable. Ultimately, it alters the true measurement factors of REIT. Therefore, FFO does not involve depreciation in the net income.
For Investors who prefer a detailed calculation of a REITs FFO. They have to refer to other sources. For example, you can check the company’s quarterly report and other additional information.
The process for calculating a REITs operating cash flow based on net income measured according to GAAP is not often accurate. Therefore, take some guidelines from experts having decades of experience in this case. So there isn’t any misunderstanding while checking facts.
Are REITs a good investment in 2021
REITs will encourage each investor to get the privileges of acquiring an interest. Through a trusted source of real estate market.
Most importantly, it will provide the option of quick and easy liquidation of investments in this real estate sector. Instead of the traditional way of dealing with real estate procedures.
In many countries, government authorities are legalizing REIT. So that it becomes easier to invest in real estate. However, directly or indirectly through foreign direct investment.
As looking at the current scenario of the pandemic. Investing in REIT in 2021 will be regaining its graph from lower to higher position. Since things are coming back to normal. From total shut down to now accepting at least 50% of the working system.
Slowly, it will pick up its pace. And investing in REITs will give opportunities to modify your portfolio. Furthermore, in traditional stocks and bonds.
Conclusion on everything about REITs & its impact in 2021
We hope that from this article you must have understood everything about REITs and its impact in 2021.
As discussed such companies owns, manages finances of income-producing properties.
Therefore, most of the REITs are publicly traded like stocks. This gives the liberty to access returns in liquid. Instead of having to do physical real estate investments.
It gives a wide range of properties investment for investors. Like buildings, data centres, cell towers, hotels, medical facilities, offices, warehouses, and retail, etc.
However, be cautious about the investment. Do some research about the company. Verify the facts and then only take informed decisions.
As it might be subject to Market risk. And we are well aware of the fact that how the market fluctuates for various industries given the conditions.
Before taking decisions regarding the investment, seek some experts advice or consultation.