A-REIT (An Australian Real Estate Investment Trust) is a unitised portfolio of property assets, similar to stocks and trade, listed on the Australian Stock Exchange (ASX).
REITs also help investors diversify their income streams, as they are an alternative to direct property investment and can be used to provide portfolio diversification. This type of investment allows large and small investors to own a share of real estate.
For example, X company, as a premium property group on CrowdfundUP, qualifies as a REIT. It purchases an office building and rents out office space with the funds generated from investors. X Company own and manages this real estate property and collects rent every month from its tenants. Thus, X company is considered an equity REIT.
On the other hand, assume Company Z qualifies as a REIT and loans out money to a real estate developer. Unlike Company X, Company Y generates income from the interest earned on the loans. Therefore, Company Y is a mortgage REIT.
There are 5 types of REIT's - with the main 3 being equity REITs, mortgage REITs, and hybrid REITs. In this blog post, we’ll discuss these REITs in detail.
Some trusts adopt hybrid structures called ‘stapled securities’ funds.
Stapled securities A-REITs provide investors with exposure to a funds management and/or a property development company, as well as a real estate portfolio.
For the sophisticated investor, there are distinct advantages to owning stock in a REIT
You do not need to know everything about the investments; a professional team take care of all the operational work. They handle all of these tasks on your behalf, along with many other investors.
REITs are required to pay out at least 90% of their income as a dividend
REITs help diversify an investment portfolio. Because real estate prices aren’t correlated to stock prices, stock prices and real estate values can move together or in completely opposite directions.
Compared to the stock market, REITs typically offer above-average returns and those returns may grow as the properties see value appreciation over time.
It is much easier to sell your stocks in a REIT than it is to sell a physical building. You’ll just need to accept the current “going rate,” which is determined by the unique market conditions at a given point in time. If you feel like getting out, you simply sell your shares to a someone interested in purchasing.
Now, let’s discuss some of the risks associated with investing in REITs.
You are relying on the REIT company to make all investment decisions on your behalf.
Trust managers may make decisions concerning your commercial property you disagree with. And if a downturn happens, you can’t personally take any actions to protect your investment.
REITs generally exhibit low growth since they must pay 90% of income back to investors but it can reinvest a maximum of 10% of their annual profits back into their core business each year.
However, the relatively small amount left over makes it difficult for REITs to grow without forcing managers to take on debt.
REITs are tethered to the real estate market. Rising vacancy rates, lower rent prices and other variables will all affect the success of your REIT investment.
Your dividends are not guaranteed, meaning any hit to the real estate market will be a blow to your pockets as well.
Whether single crowdfunded real estate investments or REITs are best for you is a matter of personal preference.
Crowdfunding finances single projects, whereas a REIT, is more like investing in company stock.
REITs typically invest multiple large real estate projects, and investors in REITs collect dividends based on the net profitability of all the investments in the trust.
If you want to invest in single projects that are easier to understand and monitor, you might prefer investing in real estate crowdfunding projects.
But if you want to invest in a conglomerate of large investment ventures, you might prefer investing in a REIT.
REITs offer more stability, but at the cost of choice and possibly lower profits. Real estate Crowdfunding platforms, on the other hand, can offer more investment opportunities with the possibility of higher profits
"Any advice provided on this blog is general in nature. Readers are urged to seek their own professional advice before making decisions."