Should you invest in REITs and diversify your portfolio?
REITs allow you to invest in high quality commercial real estate that you could not otherwise afford. REITs are an attractive investment choice that provides consistent income and dividends. You also benefit from the increasing value of the underlying commodity, which is commercial real estate. It allows you to diversify your investment portfolio by allowing you to invest in non-traditional ways.
REITs generate money from their rental properties and properties, which they pass on to their shareholders in the form of interest and dividends. In addition, they trade on the stock exchange in the same way as stocks, and the price of shares increases when market demand is high. You can sell these units at a profit and enjoy the capital gains from your REIT investment.
Benefits of REITs
Investing in REITs can benefit you in the following ways, mentioned below:
- Constant capital appreciation: REITs are expected to generate significant dividend income as well as stable capital appreciation over time.
- Diversification opportunity: As most REITS are traded regularly on the stock exchange, investors can diversify their real estate assets.
- Transparent: REITs are obligated to produce financial reports that have been audited by specialists, as they are regulated by the SEBI (Security Exchange Board of India). It allows investors to get information on topics like property, zoning and taxation, making the whole process more open.
- Achieves risk-adjusted returns: Investing in REITs offers individuals risk-adjusted returns while helping to generate consistent cash flow. It allows people to have a constant stream of income to rely on, even when inflation is high.
- Liquidity: Since most REITs trade on stock exchanges around the world, they are easy to buy and sell, which adds to their liquidity.
Pros and cons of investing in REITS
Nothing comes with almost no risk or inconvenience. REITs also have drawbacks, which parallel the benefits. It is best to have an idea of the pros and cons before deciding to invest in a REIT.
|Liquidity options||Lack of tax advantages|
|Allows you to diversify||Market risk involves|
|Transparent||Weak growth outlook|
|You get risk-adjusted returns||Maintenance costs are high|
|Stable dividend income||Other additional costs|
Understanding REITs Before Investing
While this is a smart way to diversify your investment portfolio with REIT investments, it is also essential to understand that REITs are not for everyone. The returns of REITs may be comparable to those of postal plans. REITs struggle to find qualified tenants to lease their properties, increasing financial risk. Simply put, you can invest in REITs if you have a good understanding of the investment and the dangers involved.