Real estate investment trusts (REITs) offer investors exposure to high-quality, institutional grade real estate, convenience and potential income stability without the stress of property management.
Along with your standard due diligence of any investment opportunity, there are several questions every investor should ask before investing to help determine if a particular REIT is the right investment vehicle for them.
What is a REIT (Real Estate Investment Trust)?
A REIT is a company that owns, finances, or manages income-producing real estate assets. Simply put, a REIT is a group of properties offered to investors as a single product, often packaged as a portfolio. REITs can span a variety of real estate classes such as multi-residential, commercial, retail, office buildings and more.
What are the different types of REITs?
There are several types of REITs, and they are categorized by access and by asset type. Two ways to access a REIT include:
- Public REITs are traded on major stock exchanges, such as the Toronto Stock Exchange (TSX). Publicly traded REITs can be purchased through a brokerage account and typically do not have investment qualifications. Public REITs are easily accessible and liquid. Shares of a public REIT typically trade at a multiple of price to adjusted funds from operations.
- Private REITs are not traded on the stock exchange and are purchased through the exempt market. Private REITs are sheltered from the fluctuations of the stock market and typically produce higher returns. Until recently, private REITs were only available to wealthy individuals and institutions. A private REIT’s unit price is based on the net asset value, which is determined by property appraisals using a combination of methods for valuing real estate, such as discounted cash flow analysis, replacement cost analysis and comparable sales analysis.
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(2022, December 16). Investing in a Real Estate Investment Trust. Equiton. https://equiton.com/blogs/inve...