What are Residential REITs?
Updated on 11 Mar 2020
A residential REIT is any real estate investment trust which owns and manages rental property. These could be urban high-rises or apartment complexes. Learn more about these assets here.
Introduction to Residential REITs
A particular company that invests in real estate is known as Real Estate Trust Funds (REITS). There are various type of REITs ranging from equity and mortgage to healthcare and residential. Residential REITs are trusts that manages and owns rental properties. Every Residential REIT is different, some focus on apartment buildings while some specialise in urban high-rise apartments. There are Residential REITs that cater to a specific community like college students and single families as well. You can also find Residential REITs that are either involved in development projects (invest in buildings from ground up) or grow through acquisitions. Some Residential REITs also do a combination of both.
While there are risks involved in every investment, investing in Residential REITs is a safe option as residential real estate is one of the few recession resistant businesses in the market.
Why should you invest in Residential REITs?
If you are looking for long-term investment plans, here are a few reasons why you should consider investing in Residential REITs –
- It is a recession resistant investment. Even if recession is there, people may sell their houses but they will not move out from rental properties. It is the last point in their list of cutting down expenses.
- There is a higher level of transparency in Residential REITs than any other investment option.
- As Residential REITs are traded on public exchanges, they are comparatively easy to sell and buy.
- REITs have to distribute 90% of their taxable income to the shareholders through dividends, which means that they offer high dividends compared to other stocks.
- Residential REITs provide long-term interest rates, which provides a steady income to the investor.
How to invest in Residential REITs?
Just like every public stock, Residential REITs are listed on all major stock exchanges. You can easily buy their shares. In addition to this, investors can also invest in Residential REITs mutual funds as well as exchange traded funds (ETFs). Most investors invest their retirement savings in Residential REITs or money that they do not need for a long time. You will also find Residential REITs in most retirement and investment plans offered by your employer. Investors can invest in public no listed Residential REITs as well as private Residential REITs.
It is advisable to take the services of a financial broker or advisor that will analyse your objectives and recommend the most suitable Residential REITs. Our financial experts at Kristal AI can easily create the best investment plan for you using the latest artificial intelligence technology.
What are the risks involved in investing in Residential REITs?
Just like any other investment, Residential REITs also have many risks. However, the below mentioned four risks are the most important, and every investor needs to consider them before investing in Residential REITs.
- Interest rate risk –rising interest rates are a negative catalyst for Residential REITs stock prices, especially for long-term yields. If risk free yields increase, Residential REITs and other investments have to pay higher yields. As price and yield share an inverse relationship, higher yields lower stock prices.
- Oversupply risk – the secret of real estate business booming is higher demand and constant or lower supply. If, suddenly, the supply meets the demand, occupancy rates will suffer, which in turn will hurt Residential REITs.
- Financing risk – Residential REITs bank on borrowed money to grow. If the debt is too high and they cannot pay the interest, they will have to cut down dividends or sell their assets.
- Housing market risk – Governments will always promote homeownership. If this rate increases, the demand for rental homes will drop.
Is it the best time to invest in Residential REITs?
According to the U.N., there is a serious danger of a global recession in 2020 or at the most, in 2021. Most investments are in danger. However, Residential REITs is not in the category. It is very low on the list of investments that a recession will affect.
As we discussed before, Residential REITs are recession resistant. Only a limited number of people cancel their lease and go somewhere else to cut down their expenses. Most people sell their homes and move into rental homes, which increases occupancy and need for rental properties. Therefore, if you are looking for a safe and long-term investment that will diversify your portfolio, Residential REITs are a great bet. Contact our financial advisors to know which Residential REITs pay the highest dividends.
The top 6 Residential REITs in the market
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