There are a number of ways to invest in Real Estate market including buying a property on your own , buying into a publicly traded REIT or buying shares/tokens on a blockchain based real estate platform.
A REIT is Real Estate Investment Trust which buys a bunch of properties or mortgages and allows investors to invest in the REIT. Investors can invest in it with less amount as compared to buying and managing a property on their own.
Investing in REITs has its own cons such as high taxes and fees etc. And this market is completely volatile to interest rates trends. Investing into REITs is quite risky as any investor does not get any detailed information about certain assets (real estate). Investing in Real Estate Investment Trusts(REITs) is kind of similar to mutual funds. Some of the potential downsides of investing into REITs are as follows:
- REITs usually manage a lot of properties and mortgages at the same time. REITs buy new properties and sell the existing ones. And investors do not own the shares of the same properties today as the one they owned yesterday.
- Investors cannot choose the property of their choice. Investors get very little information about the properties and more information about returns and taxes.
- The taxes and fees are too high while buying shares and getting returns from REITs. Even Direct real estate purchase provides more tax breaks and gives more decision making power to the investor.
- REITs shares are traded each day just like the stock market, so the prices of shares fluctuate throughout the day. REIT share prices are directly affected by even a small change in the interest rates.
- REITs generate a stable income for the investors but does not offer much of an appreciation in terms of capital.
There are basically three types of REITs:
- Equity.
- Mortgage.
- Hybrid.
Most REITs are equity based REITs. They buy and manage income producing real estate assets.
Mortgage REITs lend money to real estate owners and managers in terms of loans or mortgages. The income produced is in terms of interest on that loan amount.
Hybrid REITs use both equity and mortgage strategies to generate income.
Summarizing the whole topic, investing into publicly traded REITs is good to produce a steady income. Although Investors can go for blockchain based real estate platforms to have the benefit of least volatility, higher returns , greater capital appreciation and the capability to choose the exact real estate property in which they want to invest their money.