Should You Invest In Reits

One Of The Best Canadian Reits To Buy Undervalued Today

Why you should invest in REITs

Because real estate is such a great long-term growth sector, and because its generally quite reliable, most of the best Canadian REITs are fairly valued.

However, if youre a value investor looking to buy a high-quality REIT while its trading at a discount, Boardwalk REIT is a stock that offers tons of value today.

Boardwalk is a residential REIT with more than 60% of its portfolio in Alberta. And because the Albertan economy has seen some struggles for years, Boardwalk stock has suffered as a result. Of course, the energy industry suffered through the pandemic, as oil prices tumbled and production was curtailed. But it was also suffering prior to that after oil prices fell back in 2015.

Lately, though, the Albertan economy has been recovering well, and Boardwalk itself has made some high-quality acquisitions, as its recycled capital. Plus, its beaten the streets expectations for 11 consecutive quarters now, showing that its performing well, despite macroeconomic headwinds.

So, with the stock trading at a price-to-funds from operations ratio of less than 25 times, not only is it below the average of other residential REITs, but you could argue its the most undervalued of all its peers.

With the stock performing well, and the economy recovering significantly, it may not stay cheap for much longer. Therefore, if youre looking for one of the best Canadian REITs to buy ahead of 2022, Boardwalk deserves some serious consideration.

Different Types Of Reits

Based on the type of Real Estate holdings, the following are the different types of REITs available globally:

Retail REITs: These REITs are required to invest at least 24% of their assets into commercial retail such as shopping malls and freestanding retail stores.

Residential REITs: These are Real Estate Investment Trusts that own and operate manufactured housing as well as rental apartment buildings.

Healthcare REITs: As suggested by the name, these trusts primarily invest in and operate healthcare-focused Real Estates such as hospitals, nursing facilities, retirement homes, and medical centers.

Office REITs: These primarily invest in and operate office space. Their main source of income for this type of REIT is thus rental received from tenants with long-term leases.

Mortgage REITs: In the case of these REITs, an estimated 10% of investments are made into mortgages instead of physical Real Estate.

Now that we have covered some basic details of REITs, lets how REITs in India operate.

Risks Associated With Reits

As with any investment product, REITs are not without risk. The first, and one of the more obvious risks of investing in REITs is that its traded like a stock, which means it can lose value. While REITs have more upside than traditional fixed income products, the associated higher risk must be considered when looking at REITs as a pure dividend product. They will fluctuate in value as time goes on, just as a stock does, so that must be considered.

Other risks of REITs are as follows:

They must compete with other high yield investments. As interest rates rise and high-yield REITs must compete with those. More options may cause lower demand, which could lower REIT stock prices.

Property taxes: As mentioned previously, REITs are at the mercy of lawmakers. If a municipality decides to raise property taxes then thatll negatively impact dividends.

Rising interest rate climate: The current rate climate has made REITs attractive, to a certain extent. But as interest rates rise, other sources of yield may start to look more attractive from a risk-return perspective, which may bring increased pressure to REIT prices..

Loss of property: Another risk REIT owners face is downturn from niche markets. Having a broad based approach is one way to help mitigate this risk.

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How Do Reits Make Money

REITs make money through their properties by either selling or leasing them. Instead of other real estate companies, which develop properties with the goal to sell them, the primary objective of a REIT is to develop properties, run them, and fold them into their own investment portfolio. Should property owned by a REIT appreciate in value, the owners provide shareholders with income in the form of dividends.

So Are Reits A Good Investment

11 Great Reasons Why You Should Invest in REITs ...

Yes! Looking at the 25-year period ending May 31, 2017, REITs outperformed stocks, bonds, and commodities as an investment. Here are reasons why REITs are a good investment:

REITs offer diversification. REITs tend to own a wide variety of properties across the country, whereas most homeowners have their real estate exposure concentrated in a single property in one market.
REITs also tend to pay healthy distributions. They offer a way for investors to juice their fixed income returns, particularly in a low-interest-rate environment.
Keeps up with inflation. While Canadian residential real estate soars in value, REITs have quietly kept pace as an investment over the past year. Canadas largest REITs, led by BMOs ZRE, Vanguards VRE, and iShares XRE, returned between 29% and 35% in the one-year period since May 2020. However, you should temper your expectations, as this year has been atypical. The performance is less exciting over a five-year period, with the top-performing REIT returning 4.83% per year between 2016-2021.
Favourable during periods of higher inflation and rising interest rates. Thats because a strong economy can lead to higher occupancy rates and higher rent payments for real estate owners.

Advantages Of Reits For Investors

They allow retail investors to buy into properties they would need large amounts of capital for in the real estate market. You can start your own real estate empire from as little as $10 dollar a share through the MyWallSt app.
They are very liquid. As they act like shares, investors can buy and sell REITs with a lot of flexibility in comparison to traditional real estate which is one of the most illiquid assets.
Theyre a form of diversification. While a REIT is bought and sold like a stock, you shouldnt treat it as one. Money in a REIT, however big or small, is your own personal real estate investment. It is a way of diversifying your portfolio away from bonds and equities without a major capital investment.
Dividends. Dividends. Dividends. As mentioned above, one of the main attractions of a REIT is its guaranteed dividend.

While REITs offer a number of distinct advantages, they carry the same risks as any other asset class. You are not guaranteed returns automatically if you invest in a REIT. They are exposed to the peaks and troughs of the real estate market, a notoriously fickle sector, and due to the requirement to dole out 90% of its profits in the form of dividends, they are sometimes prone to rather slow growth. However, they remain a very enticing asset class worthy of any strong, diversified portfolio.

Reits Vs Commercial Real Estate: Risks

REITs

Taxation of income under the regular income head.

Initial investments could be higher

Poor growth since 90 percent of income is distributed to all unitholders

No tax benefits

Higher expense charges levied by fund management

Difficulty in replacing tenants in sudden situations

Lower control over market performance and returns

Risks from stock exchange trading and value fluctuation

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Reits Should Generally Be Considered Long

This is especially true if you’re planning to invest in non-traded REITs since you won’t be able to easily access your money until the REIT lists its shares on a public exchange or liquidates its assets. In many cases, this can take around 10 years to occur.

And with publicly traded REITs that fluctuate with the stock market, Jhangiani recommends holding onto them for at least three years. But like with any stock investment, the longer you plan to hold onto them, the more time you’ll have to recover from any huge dips in the market.

“Both public and non-public REIT investments should be considered long-term, and that could mean different things to different folks, but in general, investors who typically invest in REITs look to hold them for a minimum of three years, and some of them could hold them for 10+ years,” Jhangiani explained.

Reits Also Come With Fees

Why YOU Should INVEST In REITS (Passive Income)

When it comes to other types of investments like index funds and ETF’s, you’ll usually pay a management fee the same holds true for investing in REITs.

“Yes, there are management fees associated with all REITs. Think of it as a mutual fund they all have management fees that vary based on the fund,” Jhangiani explained.

If you are unsure how much you’ll pay in fees for a particular REIT, you can always double check with the broker or advisor you’re working with.

How To Buy And Sell Reits

You can invest in a publicly traded REIT, which is listed on a major stock exchange, by purchasing shares through a broker. You can purchase shares of a non-traded REIT through a broker that participates in the non-traded REITs offering. You can also purchase shares in a REIT mutual fund or REIT exchange-traded fund.

Why Are Reits Created

It is clear that REITs allow investors to invest in and profit from Commercial Real Estate, which is not otherwise easily accessible to small retail investors. But, here are also a few benefits to Real Estate companies that form a REIT. In India too, REITs get a few key tax exemptions that are not available to other types of Real Estate companies:

Interest payments and dividends received by a REIT from a Special Purpose Vehicle or SPV are exempt from tax. In this context, SPV is a domestic company in which at least a 50% stake is held by the REIT. A REIT can theoretically hold a 50% or higher stake in multiple SPVs that own individual Real Estate properties on behalf of the REIT.

Any income obtained from renting or leasing Real Estate Assets that are owned by the REIT directly is also exempt from tax

These tax benefits can allow Real Estate companies to reduce tax liability and generate higher income. Additionally, by listing a REIT on the stock market, a Real Estate company can also get access to additional funds for future projects through the IPO. The goal of any investment is to generate returns for the investor so let us take a closer look at how REITs do this.

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What Is The Best Way To Invest In Reits

For most, the best way to invest in REITs is to invest in a publicly-traded REIT or REIT fund after doing research on the fund and confirming it meets your investment objectives. Non-traded REITs come with more risks, such as a lack of liquidity, so be sure you understand what type of REIT youre investing in.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

How To Find Lists Of Reits

Investors can access a list of REITs at NAREITs website. You can sort and track the companies by type private, non-traded and publicly traded as well as by sub-industry.

In addition, investors can find information on REITs that are registered with the SEC, including non-traded REITs and publicly traded REITs. Each of these REITs is required to file financial disclosures so that investors and potential investors can see how the REIT is performing.

All filings can be found at the SECs EDGAR database, which is a searchable archive going back many years.

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The Keys To Assessing Any Reit

There are a few things to keep in mind when assessing any REIT. They include the following:

REITs are true total-return investments. They provide high dividend yields along with moderate long-term capital appreciation. Look for companies that have done a good job historically at providing both.

Unlike traditional real estate, many REITs are traded on stock exchanges. You get the diversification real estate provides without being locked in long-term. Liquidity matters.

Depreciation tends to overstate an investment’s decline in property value. Thus, instead of using the payout ratio to assess a REIT, look at its funds from operations instead. This is defined as net income less the sale of any property in a given year and depreciation. Simply take the dividend per share and divide it by the FFO per share. The higher the yield the better.

Strong management makes a difference. Look for companies that have been around for a while or at least possess a management team with loads of experience.

Quality counts. Only invest in REITs with great properties and tenants.

Consider buying a mutual fund or ETF that invests in REITs, and leave the research and buying to the pros.

According to the Securities and Exchange Commission, a REIT must invest at least 75% of its assets in real estate and cash, and obtain at least 75% of gross income from sources such as rent and mortgage interest.

Resilient Real Estate Stocks Are An Apt Choice Amid Uncertainty Heading Into 2022 These Are 12 Of The Best Reits To Consider In The New Year

Real estate investment trusts should finish 2021 as one of the stock market’s top performing sectors, barring a surprise late-year disaster. And investors positioned in the best REITs could be set up for a productive 2022.

The main reason REITs remain so popular with investors year after year is the reliable strength of their dividends. Remember: REITs are required to pay out at least 90% of their taxable profits as dividends . And even after a year of big stock price gains, real estate stocks continue to offer impressive yields. The average yield on REITs is presently 2.9%, or more than twice the 1.3% average yield on the S& P 500. Many of the market’s best REITs deliver even more income.

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But there are other catalysts pointing specifically to strong REIT performance in 2022.

A major growth driver is the strengthening U.S. economy, which is increasing occupancy rates and rents for real estate in the industrial, housing and shopping-center industries, among others.

“As commercial activity and day-to-day life normalize, demand for commercial and residential real estate space will continue to recover,” says State Street Global Advisors. “Combined with higher rent inflation in 2022, this supports REIT dividend growth and potential valuation appreciation.”

$124.9 billion
Dividend yield: 1.9%

But what really makes AMT stand out as one of the best REITs to buy for 2022 is how it’s priming itself for growth.

$8.6 billion
Dividend yield: 2.7%

Also Check: Investing In A Reit Is The Same As Purchasing Property

REITs or Real Estate Investment Trusts are a category of investment that allows investors to invest in otherwise high valued Real estate and receive consistent income in the form of dividends. Finance Minister Nirmala Sitharaman in her budget speech on 1st Feb 2021 announced that the dividend on REITs is exempted from TDS in order to encourage investment from investors. This has brought the REITs investment to the spotlight. And for the information, REITs are new in the Indian investment forum but they are already popular among Other markets like the USA.

USA has launched the first REIT in 1961 and since then many markets have introduced REITs.

In India at present there are Three REITs these are

To More about REITs and Complete detail about financial planning using REITs, Visit Financial Planning section.

How To Invest In Reits In 2021

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So, how do you invest in REITs? If you are investing in REITs, what are the best REITs to buy in 2020?

This is part of REITs investing series.

Previously, I talk about whether or not REITs are a good investment.

If you missed part of REITs investing series, you can read it here.

Today, we will go through all the details on how you can get started investing in REITs and also what REITs you should buy to maximize your returns and minimize your risk.

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How Do Reits Generate Returns For Investors

The goal of any investment is to generate wealth for investors and/or provide regular income. REITs provide both these benefits to unitholders. Investors can receive periodic dividends and/or interest payouts that provide regular income and at the same time, the sale of REIT units on stock markets can provide Capital Gains to the investor.

Dividend and Interest Payouts: Dividends and Interest are paid out by REITs from their Net Rental Income. This refers to income that a REIT receives by renting out and leasing Commercial Real Estate after deduction of some key expenses related to management and maintenance of the facilities. Some of the charges that are deducted from Gross Rental Income to arrive at the Net Income of a REIT include management fees, depreciation, maintenance charges, etc. The current SEBI mandate states that at least 90% of net rental income received by REITs need to be paid out as dividends and interest to investors.

Capital Gains: REITs are listed and traded on stock exchanges, so the price of individual units changes depending upon their performance as well as market demand. Just like Equity Stocks and Mutual Funds, good performance by a REIT leads to an increase in the price of REIT units, that can be sold at a profit and provide Capital Gains to the investor. Next, lets take a closer look at the key benefits and limitations of investing in the units of a Real Estate Investment Trust.