A complete beginner’s guide to private REITs

 

Including financial assets from different industries in your investment portfolio is one of the best ways to diversify your portfolio. If you are just starting out as an investor in the private markets and wish to make real estate a part of your portfolio, you should definitely consider investing in private REITs.

To know more about these amazing financial assets, read on -

 


What exactly are private REITs?

 

Private REITs are companies that manage a diverse portfolio of money-making properties. They are legally required to distribute 90% of their profit in the form of dividends and are thus amazing stable return generating financial assets. Private REITs are not listed in the public domain and are thus not accessible to retail investors. Owing to this, just an entry-level investment in these private REITs requires thousands to millions of dollars in capital.


What are the benefits of investing in private REITs?

 

Apart from giving you a constant income in the form of dividends, there are 2 other benefits of investing in private REITs, namely -

 

1)     They are not very volatile - If you are a long-term investor, this is one of the best advantages of investing in private REITs for you. Privatized REITs along with other private market investment assets are not affected by the daily price fluctuations of the public markets and thus tend to be more stable relatively.

2)  They help invest in real estate without the actual property purchase  - You would either need a good quantity of properties or a few properties that      have an above-average quality to help you make handsome profits by investing in the real estate. Though making an entry-level investment in private REITs requires a lot of money, it is still more cost-friendly and hassle-free when compared to buying a property physically.



 

What are the types of private REITs that are present in the market today?

 

REITs are classified based on the strategy they use to generate returns in the real estate market. Based on this, there are 3 types of private REITs present in the market today -

1)     Rent-based return generating REITs - Some REITs have their entire business plan centered on getting tenants for their properties and earn returns based on the collected rents. 90% of the profit garnered by collecting the rents is given away to investors in the form of dividends.

 

2)     Mortgage-based return generating REITs - These types of REITs earn their profits through mortgages and loans. They even buy properties that are backed by mortgages and upsell them by refining their architecture. However, they earn the majority of their profits from the interests that they get from giving many property loans, much like a bank.

 

3)     Hybrid private REITs - These REITs make the best of both strategies, they have properties on rent and also grant property loans.

 

All the 3 types of REITs mentioned above are advantageous in their own way and the suitable investment opportunity for you depends on your appetite for risk and preferences.

 

We hope this article helps you understand private REITs better.

 


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