The combination of booming stock markets and global growth has catapulted the price
of real estate assets to unprecedented heights.
Its collapse also decimated many banks across the world.
These price rise are having enormous affects on home owners and businesses renting their
premises, however its been hugely beneficial to owners for commercial and residential assets.
Real estate is a great asset class, because it’s the perfect hedge against inflation. Traditionally,
you invested your capital through in cash sums, or seeking capital from banks. In order to
make both of these investments, you would need a substantial capital base.
If you do not have this, you would need to over-borrow, or not invest at all.
In recent years, a third option has emerged. REIT stands for Real Estate Investment Trust.
The REIT is a tax-efficient investing structure for professional investors to establish real estate funds.
Typically, the fund manager pools together real estate assets in a fund. The fund managers collect
yield from these assets and use it to pay their investors. They can also seek financing from other lenders, by borrowing or receiving an equity investment.
REITs can be traded publicly on stock exchanges meaning they can receive equity from capital
markets as well.
The Advantages Of The REIT
The prime advantages of REITs is the diversity they offer as an investment. If retail investors wanted
to buy property in foreign markets, they would have to navigate a series of legal loopholes in a different language or culture. Investing through an REIT means that this is largely taken care of.
A second advantage is the liquidity they offer. They can sell an REIT at the same speed you would sell
a share, whereas you normally have to wait months to sell properties.
The final advantage is the amount of funds needed to invest in REITs. REITs are publicly traded
shares – they trade on the stock market. This means an investor can buy a small share of the profits,
rather than investing in an entire office block. Hibernia REIT is an example of an investment product
in Ireland which George Soros has previously invested in. Currently it costs €1.37 to invest in one stock holding. This is phenomenal when you consider how much it costs to invest in real estate
through other structures.
REITs offer a tool for investors to invest in property with little capital. If you want to sell your
holdings, you can do so fast, instead of waiting for a property to sell on the market. They provide
an incredibly tax efficient structure that means you benefit hugely as an investor.
You can also invest in a basket of property index funds. Read more about index funds here.