Types of REITs in India and How to Invest in Them?

A REIT works like a mutual fund in which you invest some money and get to own 90% of the income generated from real estate investments. The owners of top real estate firms form trusts and pool huge funds to buy income-generating lands and lease, rent, or sell them. They get a good return and have to distribute almost 90% to all investors and stakeholders. But which type of REIT is best to invest in for getting whippy returns, or have a safe stock value?

Let’s unravel the mystery about different types of REITs and which type is best to invest in if you’d like good returns.

Different Types of REITs

There are broadly 5 types of REIT where you can think about investment and expect hefty sure-shot returns. They mainly include Retail REITs, Residential REITs, Healthcare REITS, Office REITs, and Mortgage REITs, all of which are broadly expanded below for further clarity.

Retail REITs

Retail real estate investment trusts (REITs) own retail buildings such as retail stores, outlet centres, and large box shops. Rents and lease payments from tenants, who are frequently large retail enterprises, are the principal sources of income for retail REITs.

Consumer tastes and key tenants are two retail REIT concerns for stakeholders to keep in mind. Many shopping malls, for example, are losing business to online merchants such as Myntra, and Amazon. A shopping mall centred by a big box retailer, such as Kroger, may, on the other hand, give better cash flow consistency.

Residential REITs

Residential REITs are real estate investment trusts who do own or manage residences such as apartments, prefab housing, student housing, single-family homes, and condominiums. Residential REITs which have protective characteristics in that dwelling is a requirement and can sustain some demand stability even during a recession.

When considering residential REITs, some aspects to examine include demographics, employment growth, and occupancy rates, which is the percent of units available in a rental property. A trend of increasing job growth and declining vacancy rates, for example, can be a beneficial scenario for certain residential REITs.

Don’t miss It

Healthcare REITs

Medical care REITs hold and operate a wide range of health care-related properties, collecting rent from tenants. Senior living complexes, hospitals, medical office buildings, and skilled nursing facilities are examples of property types owned by health care REITs. Because of the astonishing increase and demand for health care facilities, this type of REIT is one to keep tabs on.

Office REITs

Office REITs own and manage office real estate and generate revenue by leasing or renting space to tenants. Office REITs can be segmented by location, such as inner-city high-rise office spaces or regional office parks, or by tenant type, such as IT enterprises or government agencies.

Before investing in an office REIT, REIT investors should evaluate aspects such as economic circumstances and geography. A thriving economy with massive unemployment and a rising metropolitan area, for example, might support higher office REIT rents than a weaker economy in a location with fading industries.

Mortgage REITs

Mortgage REITs are real estate investment trusts that possess assets that provide interest income, such as mortgages or mortgage-backed securities. This is in contrast to REITs, which generally own a tangible asset, like a property or land.

One thing to bear in mind about mortgage REITs is that they are interest rate volatile. Rising interest rates, for example, tend to put negative pressure on mortgage REIT balance sheets.

FAQ’s about Types of REITs