Author: Makafui Kuffo
For many of us who may want to invest in real estate but cannot afford the huge sums of money involved in acquiring a property, investing in a REIT is an easy way to invest in property without having to pay all the money required to own a property.
Similarly, people who desire to be property investors but are not ready to go through the stress involved in selling a property can easily invest in real estate through REITs. REITs offer investors the ease of converting real estate assets into cash.
At the end of this article, you would understand why this is so.
What is a REIT?
REIT is an acronym that represents Real Estate Investment Trusts. In simple terms, REITs are companies that bring together money from various individuals (investors) to buy real estate with the intention of making money from the real estate assets purchased. Like stocks, investors of REITs own shares and receive dividends. So just as anyone can be a shareholder of any company of choice, REITs offer various individuals an opportunity to be shareholders in real estate assets.
This is how REITs work
The manner in which REITs operate is very simple and straightforward:
- They acquire properties with money taken from investors.
- They lease out the properties acquired.
- They take rents from the tenants of these properties.
- They use the rent collected from tenants to pay dividends to shareholders.
Why are REITs popular in advanced countries?
According to Nareit, over 145 million Americans own REITs. Over the years, many investors have come to appreciate the dual role of REITs as an investment asset. Owners of REITs enjoy two major advantages:
- They enjoy the same benefits real estate owners enjoy.
- They enjoy the same benefits holders of stocks enjoy.
Owners of REITs have the opportunity to enjoy the benefits enjoyed by real estate owners while enjoying similar benefits enjoyed by shareholders of stocks. Just like real estate owners, owners of REITs are paid from the rents of properties acquired under REITs. This offers the owner of a REIT an opportunity to benefit from the buoyancy of the real estate market at any given point in time. Meanwhile, owners of REITs can sell off or buy new shares in REITs at any given point in time. It is so easy to buy shares in REITs. You don’t need an agent, you don’t need to have all the money required for the purchase of a property, you don’t need to pay any professional fees, you don’t need to wait for so long to get your property sold.