Finance made Simple (FINMAAS) - #1 REITS
WHO is REIT AUNTY?! (NOTE: Shes not a real aunty )
REIT ( AN INVESTMENT INSTRUMENT)
An Equity REIT, or "Real Estate Investment Trust," is a company that owns multiple rental units, generating rental income for its shareholders. It combines the benefits of both owning shares and real estate. Owning commercial property in India is highly expensive and often inaccessible for the young and upcoming population, typically requiring at least 1-2 crores. A REIT offers a much cheaper alternative. Essentially, a REIT purchases large commercial properties and leases them out to big companies, and they are financed by the shareholders who invest in the REIT. Legally, REITs must distribute at least 90% of the rental income they receive, offering investors a combination of shareholding and real estate ownership benefits.
For example, Embassy Office Parks is a REIT based in India, currently trading at 369 Rs on the stock exchange. An important metric for this REIT is the Distribution per Unit, indicating how much money it pays per share. Embassy Office Parks pays 5.2 rupees per quarter, totaling around 20 rupees per year, which translates to approximately a 5.4% payout compared to the investment. While it might not be an ideal investment presently, acquiring shares at the right price and with potential company expansion , it could be a good way to diversify your portfolio!
Advantages:
- Low Investment: Instead of buying prime real estate, investors can receive guaranteed rental income with relatively low investment.
- Liquidity: REIT shares are highly liquid, allowing investors to sell them off quickly if needed.
- Managed by Professionals: Investors benefit from having the property managed by professionals, avoiding the legal and operational complexities of owning commercial buildings.
Disadvantages:
- Price/Current Valuation Risk: Depending on market trends, owning a REIT may not always be financially viable.
- Investment Risk: There is a risk of losing the initial investment in REITs.
- Lack of options in india: Still a lack of options in India.
- My name is William and I am a CFA aspirant, I love doing analysis on these companies and I hope to follow up with more blogs. I currently hold both US and Indian stocks and will be looking to analyse stocks in all sectors once I have fully understood how to give stocks ratings based on their current value and future predictions. Thank you for reading and I hope you can spread this blog to your friends if you found this beneficial.
