If you have been following this series, you are already aware that we are exploring various profitable alternative investment opportunities in real estate that are ideal for Investment Groups/Chamas.
If not you can navigate to the beginning or previous part of this series to be at par below
Well, another strategy that an investment group can employ to grow their money is by investing in real estate investment trusts(REITs)
A REIT is a form of real estates investment where investors pool their funds together in a trust with an aim of earning income from real estate as beneficiaries of the trust. These trusts either acquire or build real estates assets which they lease or sell out to generate income distributable at the end of the financial year.
Basically, there are two major categories of REITS:-
Development Real Estate Investment Trusts
Investors pool their capital together for purposes of acquiring real estate with a purpose of undertaking development or construction projects.
Income Real Estate Investment Trusts
The investors pool their capital for purposes of acquiring ownership rights in long term income generating real estate.
Islamic Real Estate Investment Trusts
This is a special type of REIT that carry out Shariah compliant real estate Investments which can either be D-REIT or IREIT and other related activities
Major characteristics & benefits or REITS
Short to long term investments– As compared to property ownership, investors in REITs can invest in short to longer term in REITS
Consistent annual dividend payoutsLegally in Kenya, REITs are required to distribute at least 80% of their net after tax profits to their unit holders as annual dividends. This can provide a stable and consistent form of income annually since real estate assets are less volatile.
Tax Benefits– REITs are exempt from stamp duty, value added tax and income tax except for payment of withholding tax on interest income and dividends
Liquidity-As compared to real estate ownership, REITs investors can easily buy and sell units giving them an opportunity to liquidate their assets more easily
Conclusion
There are two ways you can earn income while investing in REITs; Through annual dividend which can range between 5-7% p.a and through capital gains by increase in the market value of the securities.
Its worth noting that the annual interest income that you earn will also be determined by the size of the rental income. So the vacancy rate of the properties under REIT is a factor to REIT returns in form of annual interests payout.
Currently In Kenya, there are three firms that are issuing REITs unitsin Nairobi Securities Exchange. i.e ILAM- Issuing I-REITs, Acorn Holdings Limited -issuing I-REITs & Acorn Holdings Limited issuing D-REITs
As an investment group, if you don’t have sufficient money to buy your own properties, you can choose to acquire real estate ownerships rights through existing REITS and and enjoy such annual income stream.
