Real Estate Investment Trust or REIT is an emerging way of generating passive income. This kind of passive wealth generation is becoming increasingly popular among Indian investors today. REITs give an individual the capability to invest in the real estate business without putting assets in their hands, but with a certain and regular source of returns.
It is extremely critical for prospective investors to understand that properties under REITs are handled by professionals. That’s why an investor in REIT is relieved from any technical experience or handling of properties under REITs. A REIT now is a basket of sound quality properties. Apart from the same, profits made by such properties in the way of rents, taxes etc., are distributed among the equity holders of such REITs proportionate like units of a mutual fund.
What are REITs?
REITs are organizations which purchase and deal rental income-yielding property assets. Assets such as: Commercial properties, shopping malls, residential flats etc. They mobilize funds from investors, by issuing units of proportion of such properties like a unit of mutual fund. Such income thus generated, is distributed to investors through regular pay out such as dividend, interest or return of capital.
Advantages of REITs for passive income
- Regular income stream: REITs are legally bound to distribute at least 90% of their tax profits in the form of dividends to the shareowners, creating a steady flow of passive income for investors.
- Diversification: REITs possess a diversified inventory of properties with more than one tenant, several different properties, thus reducing the risk of dependency on a single property or tenant. The diversification safeguards the income, reduces risks and brings stability.
- Lesser initial capital: REITs are superior to direct investment in property since they allow the investor to enter the market with relatively lesser capital, even ₹300-400 per unit. They are similar to units of a mutual fund.
- Greater liquidity than physical property: REIT units are listed and exchange-traded, giving greater liquidity than investing in physical property.
How to make investments in REITs?
Now for earning passive income from REITs, you need to keep the following ideas in mind:
- Investment: Invest in Indian exchange-traded REITs such as Brookfield India Real Estate Trust, Embassy Office Parks REIT, and Mindspace Business Parks REIT.
- Investment platforms: Invest online or through financial institutions in REIT units.
- Regular payments: Receive regular payments in the form of dividend and interest payments.
Therefore, REITs form an easy and efficient channel through which investors can earn passive returns on real estate with minimal or no direct exposure to properties. Due to their stable cash flows, diversification benefits, and minimal capital requirements, REITs form a vehicle for wealth creation.
However, it has to be kept in mind that investment in REIT is also interest rate and market condition sensitive. Hence, prior to investment, it is also advisable to seek the opinion of expert financial market consultants.
Disclaimer: Investment in REIT involves market risk. It is advisable to consult a financial expert prior to investment.
