Have you ever thought about owning a rental property but resisted? Or perhaps you already own rental properties but you don’t have the time to expand your holdings.
Owning real estate is something many of us think about, sometimes quite often, but for whatever reason don’t act upon. We all know that historically real estate produces stable, predictable growth with steady cash flow. Yet most of us just talk about it and never actually get into it.
Owning real estate traditionally involves not just owning but also managing the asset. Managing involves dealing with resident issues, both day and night when emergencies arise. Then there’s the maintenance factors and upkeep of the property. It’s enough to scare off most investors who want into the market.
If this sounds like you, then keep reading.
There’s an easy answer to this problem that will enable you to enjoy all the benefits of real estate without the headaches of becoming a landlord. Take the hassles out of “owning” real estate by enjoying the comforts of “investing” in real estate. Let me introduce you to Real Estate Investment Trusts (REITs).
REITs offer investors a completely different real estate ownership option. A REIT, in its simplest form, is a pool of investors that use their money to buy real estate. Instead of buying a piece of real estate on your own, you “pool” your money with other like minded investors and buy properties as a group.
Each REIT will have a stated investment objective, management structure and investment structure much like any other investment you may be looking at. Looking closely, you will learn what the REIT is investing in and what the overall asset mix is. For example, many REITs invest in apartment buildings, office, retail, commercial, hotel or industrial space. Most will invest predominately in one type and mix in a little of the other types to add some balance to the portfolio. Sound a bit like a mutual fund? Well, that’s because it is - REITs are also considered mutual fund trusts.
Understanding the mix and the types of real estate you are interested in investing in is part of the process in evaluating the REIT options that exist. Want to invest in apartment buildings? Then look for a REIT that holds mostly apartment buildings in its portfolio. Guelph based Skyline Apartment REIT for example invests mainly in apartment buildings and compliments its portfolio with some office and retail space.
REITs are great for those people who like the idea of holding real estate in their investment portfolio but don’t want the hassles of being a landlord. By pooling their money with other like-minded investors, the REITs management is able to go to the market and apply the following leverage:
• Purchase larger properties at better prices
• Secure lower interest rates on mortgages
• Secure better labour rates for renovations
• Obtain bulk advertising rates
• Apply effective management to the properties
So how do you earn income from investing in a REIT? REITs return income back to their investors in the form of monthly or quarterly distributions. Income sources include rents received from residents, other sources of revenue (parking, laundry, etc.), as well as any savings generated from reduction of costs. REIT unit holders will also realize a return if they sell their units for a higher price than what they were purchased for.