Benefits of Investing REITs
From Financial Literacy Wiki
What are the benefits of investing in REITs (Real Estate Investment Trusts)? There are altogether five benefits.
Exposure to Property Market
REITS allow small-time investors or retail investors to hold stakes in investment grade properties without requiring large capital. This idea is similar to unit trusts. There are REITS listed on Singapore Exchange that invest in properties in India and China, this allows small time investors to tap on the growth of these 'hot' economies without too much hassle.
Portfolio Diversification
REITs typically own multi-property portfolios with diversified tenant pools, thus reducing the risks of reliance on a single property and tenants in the case of directly owning a real estate asset. For a small capital, investors can be exposed to commercial and retail properties at the same time, or be exposed to different geographical location.
Professional Management
REITs allow investors the opportunity to buy into properties managed by professional property management companies. So investors do not have the headache of doing maintenance or chasing tenants for rents.
Income Distribution
REITs normally have regular cash flows. In most cases, most of the revenues are derived from rental payments under contractually-binding lease agreements with specific tenure. Investors should therefore study the occupancy rates of properties acquired by the REIT. There may be instances when the REITs management sells a property at a profit and make a special distribution of the proceeds to the unit holders.
Singapore citizens who are tax residents would receive their income without any tax deducted at source. Other investors will receive income after deduction of corporate tax but they can then claim tax credit that is deducted at source.
Potential Capital Gains
Investors can reap capital gains if they are able to sell their REITs at a price higher than their purchase cost.
