Understanding REIT

Real Estate Investment Trusts are extremely beneficial for the development of an economy as they allow dormant investable funds to be channeled into infrastructure projects such as apartment complexes, hospitals, schools and the likes.

Real estate property is an asset class that plays a significant role in many investment portfolios and is an attractive source of current income. Investor allocations to public and private real estate have increased significantly over the last 20 years. Real estate investments tend to behave differently from other asset classes—such as stocks, bonds and commodities—and thus have different risks and diversification benefits.   

As such, REIT’s have gained a lot of traction. A Real Estate Investment Trust (REIT) is a company that owns, operates or finances income-generating real estate. REITs pool the capital of numerous investors. This makes it possible for individual investors to earn dividends from real estate investments—without having to buy, manage or finance any properties themselves.  

Properties in a REIT portfolio may include apartment complexes, data centers, healthcare facilities, hotels, infrastructure—in the form of fiber cables, cell towers and energy pipelines—office buildings, retail centers, self-storage, timberland and warehouses.  

In general, REITs specialize in a specific real estate sector. However, diversified and specialty REITs may hold different types of properties in their portfolios, such as a REIT that consists of both office and retail properties.  

REITs have many advantages for interested investors. It provides a regular income stream along with reduced portfolio volatility and dividends and wealth accumulation. As a result of it being a listed entity, it is bought and sold with ease providing great liquidity. It is a natural hedge against inflation as returns have been seen to consistently outpace Consumer Price Inflation.  

There are primarily two types of REITs – Equity and Mortgage. REIT's are extremely beneficial for the development of an economy as they allow dormant investable funds to be channeled into infrastructure projects such as apartment complexes, hospitals, schools and the likes.