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Sunday, May 1, 2016

Benefits of investing in REITs

REITs (Real Estate Investment Trusts) are companies that pool funds from investors. This fund then is used to own or finance income producing real estate. Owing shares in REITs allow you to reap all benefits of owning property along with some other advantages.

These benefits include

Investing in small amounts
For average joe to purchase property in Karachi or Islamabad isn’t possible. It may take years in saving to buy a small piece of land. But by purchasing shares in REIT you can start owning property with as less as 5000 rupees.

Collection of rent and maintenance services
 When you own the property you have to maintain the property and collect the rent. If you own more than one property then managing them and collecting rent would be a lot hectic. With REITs you can collect your rents in the form of dividends. Furthermore all the maintenance functions are to be done by your REIT.

If you have small amount to invest in real estate, you cannot buy a number of properties which can diversify your risk. Diversification for REITs is possible owing to their huge funds, hence; you can be a lot secure when you invest through REITs.

Professional management
REITs charge you for their professional services.  The management makes sure that risk and rewards are balanced.

Economies of scale
Purchasing and managing properties can be very costly. REIT owns a lot of properties. In this way they can spread fix costs over a large number of properties, hence reduced per unit costs for you.

Availability of loans
In developing world taking loans from banks is a problem. REITs can take loan from banks easily if they have good credit rating. This enables them to make leverage purchases, hence high dividends for you.

Less risk of fraud

With professional management the risk of fraud is minimized. Defective titles and encumbrances are now not your problems, but your REIT will take care of them.

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