Beginners Guide to Investing in Real Estate Investment Trusts (REITs)

Have you ever considered how you can invest in real estate without the hassle or stress of directly managing properties? You have probably thought that when you invest in real estate, you’ll need to get a manager to manage them for you.

The fact is: you can invest in real estate without having to hire a manager to manage your real estate investments. How then can you achieve this? The answer is the Real Estate Investment Trusts (REITs).

It is a game-changer for individuals and investors looking to tap into the lucrative real estate market without the burdens of traditional property ownership. In this article, you’ll learn what real estate investment trusts (REITs) are, their advantages and how you can leverage REITs to enhance your investment portfolio, especially in Nigeria’s real estate market.

What Are REITs?

Real estate investment trusts (REITs) are companies that own, operate, or finance income-producing real estate across various property sectors. They provide a unique opportunity for investors to earn a share of the income produced through commercial real estate ownership without actually having to buy, manage, or finance any properties themselves.

This makes the Real Estate Investment Trusts (REITs) a very attractive option for investors who are looking to diversify their investments while profiting from the real estate market.

In Nigeria, if you’re looking to invest in Real Estate Investment Trusts (REITs), you’ll find them traded on the Nigerian Stock Exchange (NSE). You can easily buy and sell these investments through authorized stockbrokers, just like you would with regular stocks and shares. This makes it a convenient way to enter into the real estate market without the hassle of managing properties directly.

Advantages of Investing in REITs

Here are some of the advantages of investing in the Real Estate Investment Trusts (REITs):

1. Accessibility to Real Estate Market

Investing in REITs allows individuals to enter the real estate market with relatively low capital compared to purchasing physical properties. In Nigeria, the prices of property can be relatively high, such that one is unable to invest in the market all alone. REITs provide an accessible entry point for many investors.

2. Liquidity

Unlike traditional real estate investments that can take time to sell, many REITs are traded on stock exchanges. This allows investors to buy and sell shares easily. This liquidity means you can quickly convert your investment into cash if the need arises.

3. Diversification

REITs often hold a diversified portfolio of properties across different sectors, which can be residential, commercial, or industrial. It is an investment strategy that helps mitigate risk. By investing in a REIT, you gain access to multiple properties and markets rather than putting all your money into a single property.

4. Stability of Income

One of the most appealing aspects of REITs is their potential for generating stable income. By law, REITs must distribute at least 90% of their taxable income as dividends to shareholders. This means you can enjoy regular income payouts, which can be particularly beneficial for those seeking passive income. They typically offer an attractive dividend of about 10% and above.

5. Professional Management

REITs are managed by experienced professionals who handle everything from property acquisition to management and maintenance. This relieves individual investors from the complexities and responsibilities associated with direct property ownership.

6. Tax Efficiency

In Nigeria, REITs benefit from tax exemptions on corporate income as long as they distribute the required percentage of their income as dividends. This structure allows investors to enjoy greater returns on their investments compared to traditional corporate stocks.

How to Get Started with REITs

To become proficient in investing in REITs, you should consider following these steps:

Step 1: Research Available REITs

In Nigeria, some of the notable REITs include UPDC Real Estate Investment Trust, Union Homes REITs and Skye Shelter Fund. You want to ensure that you do your research into these real estate investment trusts (REITs). One of the things to look out for is their performance history, management team, and portfolio composition.

Step 2: Open a Brokerage Account

You’ll need a brokerage account in order to be able to buy shares in a REIT. Make sure to choose a licensed broker who offers access to the Nigerian Stock Exchange (NSE).

Step 3: Understand Market Trends

You can not invest in a business that you have no knowledge and understanding about. Even Aliko Dangote was once quoted as saying that he knows everything about the cement industry.

Therefore, you must keep an eye on market trends affecting real estate in Nigeria. Some of them include the rate of urbanization and economic indicators. The insights gained will help you to make informed investment decisions.

Step 3: Monitor Your Investments

You cannot make an investment without monitoring it’s performance. Therefore, ensure that you regularly review your portfolio and stay updated on the performance of your chosen REITs. This will help you adjust your strategy based on market conditions.

Conclusion

Investing in Real Estate Investment Trusts (REITs) offers an excellent opportunity for individuals and investors alike who are looking to diversify their real estate investment portfolios and generate passive income.

As you consider leveraging this investment avenue, you must bear in mind that knowledge is key. Therefore, be sure to equip yourself with the right information about various REIT options and market dynamics to make informed decisions that align with your financial goals.