Is Real Estate Investment Trusts a Good Career Path?
Real estate has always been a lucrative field. We all know how much money brokers and real estate agents make. While many students are moving towards the IT sector, real estate is a field with many opportunities that are waiting to be explored. Real Estate Investment Trusts is one of them. But is real estate investment trusts a good career path? Let us find out.
What is Real Estate Investment Trust?
REIT or Real Estate Investment Trust is an entity that owns, operates, and regulates finances at a specified price. REITs are firms that generate revenue for investors through real estate rather than bonds or stocks. Many apartments and commercial spaces are owned, managed, and overseen by the real estate investment trust. Predominantly, these trusts allow investors to hold a portion of their wealth in the form of residential and commercial leases to diversify their portfolios. Investors put their money across various projects such as schools, hospitals, hotels, warehouses, etc. However, if an investor invests through these trusts, it may be far more beneficial for them. It is because these trusts receive tax concessions from the government and can yield decent returns for the investors.
How to Manage a Real Estate Investment Trust?
These trusts are from the 1960s. However, they have gained significant recognition over the last few years. The primary purpose of the real estate investment trust is to decrease the liability of the investors by letting them invest in multiple properties without having to manage them themselves. Furthermore, REITs allow all investors to acquire their ownership in real estate ventures, regardless of the capacity of the investors to pour their money into the ventures. They are similar to mutual funds as they allow all types of investors to invest in a particular project.
Things to Remember before Working in REITs
However, there are some significant rules one must know before making a career in real estate investment trust:
More than 75% of the total income must be generated from real estate investments such as rents, sales, or property purchases. These trusts require a minimum of 100 shareholders. It is also to be noted that no single person is allowed to acquire more than 50% of the shares. At least 90% of the taxable income must be paid dividends to all the shareholders. Most REITs are publicly traded, which implies the investors are authorized to buy or sell their shares in the same way as they do in a mutual fund. Real estate investment trusts must be managed by the trustees or the board of directors A minimum of 75% of the assets need to be invested in cash, treasuries, or real estate. REITs must be taxable entities.
All the properties under REITs must be managed comprehensively to maximize the investors’ returns. Therefore, it is advisable to invest in publicly traded REITs as they have employees who extensively take care of investments and manage them recurrently, compared to non-traded REITs. As most non-traded REITs sign a contract with third-party real estate management firms that may or may not take care of their investments as much as publicly traded REITs do.
Types of Real Estate Investment Trusts
Most real estate investment trusts deliver high, steady dividend income and long-term capital appreciation. Moreover, the low correlation with other assets makes it a superb portfolio diversifier that can help minimize the overall portfolio risk and boost returns. However, there are different real estate investment trusts to know. They are as follows.
1. Retail REITs
Retail real estate investment trusts own and manage commercial and retail spaces in those properties to tenants. Primarily, they focus on outlet centers, shopping malls, power centers, and grocery-anchored shopping centers that feature big box retailers. They sell the real estate spaces after leasing them out. So, retail investors can earn a good return as they can sell their rented spaces at an increased value, depending upon the price of the rent they have to lease their property in. They also hire a proficient team of real estate managers liable to manage their properties.
2. Residential REITs
These trusts hold, operate, and manage rental properties. Residential REITs also operate manufactured housing that generates good returns over a certain period. However, these REITs involve their own set of risks such as financial risk, housing market risk, interest rate risk, and oversupply risk.
3. Office REITs
The best thing about office real estate investment trusts is that they do not have drawbacks. They are best known for providing a stable income, which is better to hold such investments in office hubs. The tenants of the spaces usually sign a long-term lease agreement. Additionally, office REIT returns are related to the state of vacancy rates, unemployment, and the economy.
4. Healthcare REITs
Healthcare real estate investment trusts pour their money into properties such as assisted living centres, surgery centres, clinics, and hospitals. REITs are ideal for long-term growth and depend on healthcare funding.
5. Mortgage REITs
The income of these trusts generates by calculating the difference between the interest they earn on the mortgage loans and the cost of funding loans. These REITs are also responsible for buying mortgage-backed securities and lending money to property owners.
6. Hybrid REITs
It is a perfect combination of a mortgage and equity real estate investment trust. It means investments are made in mortgages and real estate spaces, and loans are extended to real estate investors for this purpose. So, the dividends are earned on mortgage interests, capital gains, and rental income. Also Read: Top 10 Cool Jobs in India with High Salary
Types of REITs based on Ownership
REITs are also divided on the basis of their ownership into broadly three categories which are given below.
Private REITs: These REITs are sold to institutional investors that are not traded on the NSE. Also, private real estate investment trusts are not monitored by the SEC (Securities and Exchange Commission) and operate under the same rules regardless of their category. Public Traded REITs: The SEC regulates the Public traded REITs and is listed on NSE. These funds can be purchased and sold by domestic and foreign investors on the NSE. Public Non-Traded REITs: Public Non-Traded investment trusts are not listed on NSE. It means they cannot even be traded on the NSE, making them less liquid than their Public Traded counterparts. However, it makes them more stable, which means they may deliver consistent returns in the long run.
Jobs In Real Estate Investment Trusts
Before entering this field, you must know all the different jobs available in Real Estate Investment Trusts that you can pursue. Let’s dive in to know the positions and salaries in this field.
1. Property Managers
Want to attract wealth and good fortune? Why not become a property manager, one of the coveted positions worldwide? So, if you can get it, do not miss out on this and grab this career opportunity in the world of Real Estate Investment Trusts. Property managers are held responsible for managing the everyday operations of individual properties. Additionally, these managers know the customer service advantages to ensure the business thrives. It is a high-paying job that needs no investments. It proves to be an ideal career if you want to reap significant money in the real estate investment trust industry.
2. Asset Manager
Asset managers are liable for the financial and operational performance of the portfolio assets. They look after the investors’ assets and replace the assets whose price is falling with the better ones with a high potential to grow. Asset Manager also oversee the real estate space operations and ensure expenses align with revenue projections. They analyze and evaluate how to bring them down if they find high expenses. Asset managers provide a higher return to the investors by using their knowledge, expertise, experience, and skills by having a degree in finance and market fluctuations.
3. Acquisition Analysts
Acquisition analysts locate emerging avenues for investments. These professionals have expertise in multiple fields and knowledge in marketing, finance, and capital markets. As an acquisition analyst, you can make good money, if you are able to perform all your duties efficiently, such as identifying acquisition targets, preparing and managing agreements, and negotiating lease and buying/selling prices. Entering the REITs can typically allow you to lead to a mid-level management position in the beginning. However, once you gain experience and expertise, you can do wonders as an acquisition analyst in the real estate field.
4. Development Executives
The development executives work with several contractors and subcontractors. They are responsible to finance the property development. They are also called investment analysts with complete knowledge of real estate markets and regulations. Development Executives focus on assisting the companies they work for by helping them make decisions that maximize their returns and the investors’. The development executives also conduct a cost-benefit analysis to determine whether the property improvements make sense from a financial perspective. It is a fieldwork job that includes both managerial tasks and non-managerial tasks.
Benefits of Investing in Real Estate Investment Trusts
Making your career in this field is entirely different from other jobs. All you must do is help everyday investors use their money and put them into real estate with immense growth potential. They are various reasons that draw investors towards REITs and some of them are as follows.
Liquidity: The percentage or the ratio of the funds you invest in Real Estate Investment Funds are not tied up or blocked. It can be consistently rotated. Thus, overcoming the traditional disadvantages of real estate. Perfect for Diversification: Real Estate Investment Trusts work great with a portfolio of mutual funds, bonds, stocks, or other investments. The REIT comes with no baggage unlike traditional properties, which are time consuming and costly. They are also easy to manage. Professional Management: Real estate consultants, experts, and professionals take care of your money in REITs. It means you do not have to manage or look for negotiating leases, maintenance costs etc. Transparency and Regulation: All the information related to REITs is made public to investors, which means the whole process is transparent. REITs are listed on most stock exchanges and operate under the same rules and regulations for reporting and regulatory purposes. Dividends: REITs yield a decent amount of dividends on their investments. It gives 90% of the profits back to the investors within a specified duration. The income is safe, stable, and consistent. Tax Benefits: The returns you reap from REITs are taxed at a low rate of 20%. That means you can save the extra 10% of the tax if you come in the 30% tax slab. Performance: Over time, these funds have proven to perform better than traditional funds and any other real estate related investments.
Downsides of Real Estate Investment Trusts
Although there are many upsides to REITs, there are also some risks attached to them. Let us go over some of the drawbacks of REITs. Speculative Real Estate Investment trusts are speculative, as they do not hold the titles of an investor on their properties. The reason is simple: these properties are crowdfunded, so they cannot be sold if they need cash. In contrast, it may not even be disadvantageous if the REIT assets are worth more than their debts. Still, the brands’ properties lose value, implying the organization can go bankrupt. Operate at a Net Loss As we already informed you, REITs use debt to finance growth, implying they operate with hefty amounts of debt. Consequently, most REITs operate at a net loss because of the massive debt they must pay monthly. It indicates that even if you can yield high returns from a real estate space, these companies cannot pay you dividends because all their revenue goes towards servicing debt. Lack of Control Investors do not have any say in their investment decisions. It includes aspects such as the strategies developed for market trading and property ownership.
Tips to choose Real Estate Investment Trusts
Being an investor, there are some factors to bear in mind before picking on a real estate investment trust. They are as follows.
Always analyze and evaluate the FFO of a REIT. It is done because depreciation overstates an investment’s decline in property prices. Choose the REIT that delivers long-term capital and high dividend yields. It is important because these trusts are based on ROI and are known for delivering high returns. Trust the REIT that has reliable tenants and properties at a high potential location. Invest in REITs having team management teams with considerable experience. To save time on the research, opt for a reliable mutual fund or ETF that already invests in REITs.
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How do Real Estate Investment Trusts Work?
REITs make money in 2 ways. First, they generate revenue from their properties and payout expenses such as maintenance and taxes. The other way is they sell a specific share to investors who receive a form of dividends based on earnings.
Is Investing in REITs Riskier than Stocks?
If we compare stocks with REITs, stocks will be determined to be riskier than REITs. Stocks can go down in value at any point and are affected by global factors. REITs are also better than stocks if you are planning to invest for the long term.
Are Real Estate Investment Trusts a Good Career Path for You?
Is Real Estate Investment trust a good career path? Should you consider another opportunity for your career goals? The decision in the end is yours. We have done our part in explaining the different opportunities in this field and its pros and cons. The best part about choosing this career is that you will be your boss. All you need to choose is the area that appeals to you and has immense potential to grow in the future. This way, you can easily attract a larger group of investors and make the winning proposal for you and the investors. You can also start small and work as a real estate developer or an analyst. This will be beneficial for your career and enhance your skills from industry experts. Besides career opportunities, once you gain enough experience in the field, you can also invest in Real estate Investment Trusts because of their potential returns. Is Real Estate Investment Trusts a Good Career Path? The answer will vary from person to person. However, one must know that REITs are not a shortcut to becoming rich overnight. If you are interested in properties and if you enjoy working with numbers and finances, then this field might be for you.
