Unlocking the Potential of REITs in Your Investment Portfolio !

Welcome to Beyond Bread Butter - a weekly exploration to alternate #investment strategies creating ultimate #passiveincome. In this #newsletter we try to analyze different options available to create #portfolio of income generating #assets which requires least amount of your time. The analysis covers most important questions in brief from retail perspective and my views on the strategy.

Hope this brings value to your investing journey 🙂

Real Estate Investment Trusts (REITs) are companies that own and manage income-generating real estate properties. They provide investors with an opportunity to invest in real estate without the need to buy physical property. Instead, individuals can purchase shares of the REIT, allowing them to participate in the income generated from the underlying properties.

REITs invest in a variety of real estate assets such as office buildings, apartment complexes, shopping centers, hotels, and more. They generate income through rent from tenants, and in some cases, through the sale of properties. The income generated by REITs is then distributed to shareholders in the form of dividends.

Since REITs own and manage high-value real estate properties, they are one of the most expensive avenues of investments. Consequently, investors who park their funds in REITs are those who have substantial capital at their disposal. For example, big institutional investors like insurance companies, endowments, bank trust departments, pension funds, etc. can suitably invest in these financial tools.

Unlike stocks and bonds which follow a business cycle of 3-5 years, REITs are more in sync with the movement of the real estate market. Notably, such movement tends to last for over a decade and hence further suitable for investors who are looking for a long-term investment horizon. In turn, it proves to be a profitable investment avenue for retirement planning.

So according to me I would only go for this only if I have surplus post investments in fixed income core products like bonds, PPF. That’s because it offers returns less than fixed income but is exposed to market risk like stocks.

Good returns that I have seen in real estate are to the tune of 10%-11% CAGRs and that too when I look back for a period greater than 25 years.

So can’t deny that its a great option from diversification point of view, but risk adjusted return is just too low for me. Because for general wealth I have MFs and for near term horizon I can go for PPF and bonds.