What are REITs?
You’ve heard of REITS, You know it’s got something to do with investments and growing your money but not much else. So what on earth are REITs? Let’s dive in and find out. REITs stands for Real Estate Investment Trusts. They are a subset of shares. When you buy shares in a REIT, they use the money to buy, operate and manage properties. Basically, you invest in the properties managed by a particular REIT. The rental income earned by those properties is then paid out to you in dividends. This is unlike publicly listed companies, which use their investors’ money to run businesses. REITs are paid out every quarter, or every 6 months, and usually earn you between 5 percent to 8 percent a year in dividends. Although the share price of REITs goes up and down just like regular stocks, they can also be sold off like regular stocks when the price goes up to make you extra money. Now even when the REIT’s share price falls, you may still receive dividends because the properties continue to earn rental income. But this doesn’t mean you can simply ignore the share price. Keeping abreast of the highs and lows is important so you know when to sell it off. Investing in REITs is fairly low risk. It’s a passive investment and you won’t have to constantly watch the stock market. You just need to:
1. Open a CDP account, and, 2. Set up a trading account with a brokerage firm of your choice. This is why REITs are good for beginner investors who may not have much cash on hand. If you want a more hands-off approach, you may even consider a REIT Exchange-Traded Fund, or a REIT ETF, which tracks a certain REIT Index by buying a basket
of REITs in the same proportion, and listing it on the SGX. Take note of an important caveat: High commission rates charged by brokers may eat into your profits! Choose wisely to ensure that you maximise your investments!