5 Types of REITs and How to Invest in Them

5 Types of REITs and How to Invest in Them

A real estate investment trust, commonly abbreviated to REIT, is an investment option worth considering in your portfolio due to its diversification factor, relatively minimal risk, and assured returns. This article looks at the five types of REITs and how to invest in them.

What is a REIT? A REIT is a company that owns, runs, or funds an income-generating real estate. The company pools capital from different investors who, in turn, earn dividends without having to manage the real estate themselves. This is partially why REITs are so appealing to potential investors.

Types of REITs

Here are five types of REITs based on the kind of real estate they focus on: Retail REITs

Retail REITs are real estate investment trusts that own property designed for lease to retailers, usually in central business districts and upmarket areas with considerable traffic. These REITs collect rent from the retailers monthly, quarterly, or annually, depending on the lease agreement.

The best profit-making str ategy for a retail REIT is to look for anchor tenants whose business is strong, preferably with an excellent corporate image and a promising future. For example, a retail REIT could first secure a popular restaurant franchise alongside a leading supermarket as anchor tenants. This will help ensure you enjoy a steady income and help attract other businesses that could thrive in proximity to the two anchor businesses.

Residential REITs Residential REITs own apartment blocks or chains of apartment blocks.

Residential REITs are usually not the most exciting investment vehicle, but they produce a steady return on investment since they centre on something everyone needs; a home. Therefore, when investing in a residential REIT, think of long-term success with relatively little risk. You only need to ensure the selected property is affordable, and has easy access to transport lines, social amenities, emergency services, and retail outlets.

Healthcare REITs

Healthcare REITs focus on hospitals, care homes, retirement homes, nursing facilities, and specialised health centres. The healthcare market segment promises excellent returns, considering the growing number of patients who need specialised care. If you’re interested in healthcare REITs, it is crucial that you partner with a reputable company that wants to make a positive impact as much as you do. One such company is Civitas Social Housing REIT.

Office REITs These are similar to retail REITs but focus on providing office space to companies that prefer not to construct their own premises. Office REITs usually focus on high-quality structures like skyscrapers that promise high rental income or older buildings that will produce excellent returns after renovation. When investing in office REITs, go for premises in busy commercial sections of the city. With the recent shift to working from home, premises in such sections are the only ones still enjoying high tenancy, thus promising excellent returns on your investment.

Mortgage REITs Instead of offering premises in exchange for rental income, mortgage REITs offer individuals capital for constructing or buying property and then charge interest on the mortgage payments. Mortgage REITs capitalise on the existing mortgage industry by utilising its business model. Therefore, there is a cushion against the hassle of being directly involved in managing property. However, there are risks involved, such as fluctuating interest rates that affect the value of the mortgage REIT. With the promise of excellent returns but the threat of fluctuating interest rates, it comes down to your risk appetite. Consider how much risk you’re comfortable with before investing.

How to invest in a REIT

Investing in a REIT means buying shares in the REIT, from which you will earn dividends at specific times, usually at the end of the financial year. A critical factor in determining which shares to buy rests with the performance of the REIT and its future outlook.

REITs allow you to profit from your investment without engaging in the property’s management operations. Get in touch with us today for a chance to invest in one of the country's fastest-growing and solid investment opportunities.

©Civitas Social Housing PLC