If you have an extra 50,000 or 100,000 INR and you want to invest in, you can invest it in real estate! Prior to about five or ten years ago, there would have been no opportunity for individual investors to invest this small amount in real estate.
However, today there is a multitude of opportunities for beginning and small individual investors to invest in real estate, by accessing Real Estate Investment Trusts (REITs) through online platforms that are easy to use.
How Much Should I Invest?
First, let’s talk about what money you should invest in. The rule of thumb is, only invest money that you can leave in the investment for at least five to ten years. Why? Because due to market variables, your investment will fluctuate in value, and if you needed to access this money during a down market you could lose money. Moreover, it can take several days or even weeks to get your money after you ask for it. That is not much help to you if you have an emergency car repair, or you lost your job and need that money for groceries.
What is a REIT?
A Real Estate Investment Trust (REIT) owns or manages income-producing real estate, either the property itself or mortgages on the property. Most generate dividends as well as appreciate in value. An individual can invest in a single REIT, in an exchange-traded fund, or with a mutual fund.
Investing in a REIT allows an individual to make a relatively small investment in real estate and mitigate the risk of loss because a REIT’s holdings will be inherently diverse. Some listed REITs on Indian stock exchanges are Embassy Office Park REIT and Mindspace Business Parks REIT Ltd.
Types of REITs
Retail REITs
Retail REITs invest in freestanding retail buildings, such as shopping malls and shopping centers. Retail REITs make money from the rent paid by their commercial tenants, so prior to investing in a retail REIT be sure to research whether the market is supporting that REIT’s tenants. If the tenants aren’t paying rent or the buildings are empty, that REIT will not make money for you.
Residential REITs
Residential REITs own and manage multi-family apartment buildings. Prior to investing, research the vacancy rate, because if that is high that is a sign that that location does not have the job growth and population to support residential rentals.
Healthcare REITs
Healthcare REITs own and manage hospitals, nursing facilities, rehabilitation facilities, and retirement homes. Look for diversity in a healthcare REIT’s holdings, with a significant amount of assets being those that serve the aged population as Medicare and Medicaid help fund those facilities and is a stable source of funding.
Office REITs
Office REITs own and manage office buildings, making money by collecting rent from tenants and through appreciation of the property. Again, prior to investing look at the vacancy rates, and look for holdings in or near major metropolitan centers because those offices will command more rent.
Mortgage REITs
These REITs are inherently diverse, but the value can fluctuate according to interest rates. If interest rates rise, that will cause a decrease in a mortgage REIT’s book value, and stock prices will take a hit.
Investing in Real Estate is very lucrative but it requires a large sum of money upfront which can be difficult to manage for small investors. REITs listed on the stock market provide good liquidity as an investor can buy or sell as per need with small amounts.
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