What are REITs and Are They For You? When we decided it was time to create a REIT (Real Estate Investment Trust), it was with one simple goal: To provide investors the ability to invest in larger multifamily and commercial buildings without having the have all the capital, know-how, and time to manage these assets.
When you look up REITs, you will see a common theme and the main reason for this is that REITs are regulated. More on that later…
What is a REIT?
REITs, or real estate investment trusts are companies that own income-producing real estate across a range of property sectors and in some cases, across multiple regions.
REITs offer diversification without sacrificing growth potential.
When you hear the word “diversify” your investment portfolio, “even-steven” comes to mind. After all, what’s wrong with having diversified portfolio? If one investment goes down, the other will likely go up and there you go—you haven’t lost any money… but you didn’t make any money either. Most REITs are diversified in having all their assets (generally several buildings/assets) under “one roof”, may have different classes or real estate (i.e., InvestPlus owns both multifamily and industrial properties), and in many cases, are in more than just one city. While it gives you the diversity, it’s still all focused on real estate.
REITs provide exposure to real estate—real brick and mortar assets brick with reliable income.
Most REITs have one thing in common: income-producing real estate. Assets they acquire and manage produce income, which is the income that in part, is paid out to unitholders. In fact, one of the regulations is that 90% of their net earnings needs to be distributed to unitholders.
REITs are unique when it comes to the income, in their combination of income, potential capital appreciation, and tax-benefits.
We’ll assume you know what capital appreciation is and focus on income and tax-benefits. REITs don’t pay any taxes and the income it pays out as ordinary income or return of capital (ROC). Ordinary income is taxes at the unitholder’s personal income tax rate. ROC income is not taxed. REITs have the ability to offset the income paid out to their unitholders with the REITs operating costs and when they depreciate the real estate assets. While there is no tax liability on ROC, there is an increase in taxes due when the REIT units are eventually sold.
REITs are subject to more stringent regulations.
We mentioned about the distribution of income in point 2, so we won’t dwell on that anymore. REITs are required to have an independent board who represents the unitholders and ensure that management executes their plan and meets the mandate of the REIT. Areas like leverage, financial report, acquisition, and sale of assets are just a few areas which the board oversees. This provides unitholders an added layer of security. While very rare, we’ve had instances where the board did not approve the acquisition of some assets. So, the process works. This provides investors with and added layer of security.
You may notice there are REITs in all sorts of real estate assets. From gas stations to timber land to prisons. When you think of these all together, they all have a common theme; income-producing assets with long-term viability in the business. We’ve chosen to create a REIT with two main classes of real estate: Multifamily and industrial buildings. Coming off a tumultuous year in 2020, and looking into 2021, both these classes of real estate fit in to the new world as we know it. With more people working from home, the need for multifamily buildings has been amplified. In the same respect, ecommerce has also accelerated pushing values of warehouses and distribution center buildings up and vacancies down.
For InvestPlus, we grew our portfolio by about 57% at the end of 2020, and by March of this year we are already at 28% over last year. There is no stopping when it comes to opportunities to grow your money. Spend 50% of your time looking for those deals and opportunities, because if not, you are missing out. For more information on how REITs work and guidance on how to avoid losing money on investments with little to no returns, request our Current Offering Memorandum here: www.investplusproperties.com/current-offering
We hope you enjoyed reading this article “What are REITs and Are They For You?” and should you have any questions or if you’d like to speak to one of our consultants you can contact us.