Here at Propsults, we understand that Real Estate Investment Trusts (REITs) are investment instruments that allow individuals and institutions interested in real estate to profit from the real estate business without fully owning the property.
Plus, it also exposes you to experienced real estate specialists who are well-versed in the market, act as a passive means of income, bless you with something that adds value to your investment portfolio, and expose you to its other features.
As you have probably learned, it is wise and safe to invest in REITS only when you know how to buy it. However, remember, the laws and regulations protecting REITS investment vary by country. For example, in Nigeria, REITs are required to pay their shareholders greater than 90% of their taxable profits in the form of dividends.
So in this article, you will understand how REITs operate in Nigeria, how to buy a REIT stock, and know a few REIT examples.
How Real Estate Investment Trusts Operate
REITs in Nigeria operate in two major established ways; as either a company or individual investor.
But generally, they operate under the frameworks proposed by the Federal Government and official government agencies such as the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE).
The job of the above-mentioned agencies is important because they regulate REIT activities and makes real estate transaction and trading possible, respectively.
In Nigeria, too, a REIT is considered a stock and investors use it as a source of regular income, earning through things such as rental income generated by the funds, capital appreciation, and selling off their share of stock (shares) when its market value rises.
If you are considering owning a REIT company, the table below contains how REITs ( REIT companies) work in Nigeria:
| How REITs Operate in Nigeria |
| Registration and Establishing: First, choose an available name for the company, then legally register the company as a corporate entity with the Corporate Affairs Commission (CAC).Application: Apply for approval from the SEC and NSE, then wait till your company name is accepted as a corporate body. Invest: Next, invest at least 75% of the company’s capital and acquired assets into real estate. Trade: Learn how to trade the company’s REIT units on NSE after confirming that NSE has listed the company as a REIT investor.Systemise: Draw some company’s reporting system. Lead, don’t boss: Lead your employees by providing a structured employee system. Follow legal regulations: Ensure you are following SEC’s regulatory and supervising rules. |
If you will prefer to go into REIT investment as an individual rather than an entire entity, you should ensure that:
- The company/firm is structured and understands how the Nigerian Stock Exchange works.
- The structured REIT company you join has registered with Corporate Affairs Commission (CAC).
- Ensure that the Nigerian Stock Exchange (NSE) recognizes the company as a REIT entity.
- And ensure the company pays their shareholders/investors (you) in dividends.
In general, REIT investors benefit by using REIT stocks as an easy and comfortable source of income since they don’t have to own the property as a stock and are therefore not forced to pay the typical large expenses that come with direct investments in the real estate industry.
These expenses usually range from property taxes, insurance, management, maintenance, etc.
How to Purchase a Real Estate Investment Trust
Research
Researching possible real estate investments and estimating returns is the initial step. You must investigate several real estate markets to discover which ones fit into your life and offer the highest desirable & quick returns.
Consider your level of risk tolerance and assess the company’s previous income using the location, rental yields, capital appreciation patterns, share prices, and investment options of the company.
Choose a Brokerage Platform
After locating an attractive real estate investment opportunity, you can purchase REIT stocks via a broker (brokerage platform) or industry professionals.
When choosing a professional brokerage website, ensure the site has a list of REIT profitable stock exchanges before you open an account with them (their sign-up tab is usually on their home page –somewhere visible).
To purchase a REIT investment property, you must supply the relevant personal details, sign a risk acknowledgment document, and meet specific criteria such as being of adult age.
Fund Your Account
When you fund your account, you are one step closer to regularly and conveniently earning through REIT.
The brokerage website will provide you with an account number to transfer money like a traditional bank account. Meaning; you can either transfer, use credit/debit card payments, or use an electronic payment service to fund your new REIT account.
Place Your Order
With your brokerage account funded, you are ready to buy a stock that your investment advisor recommends. However, before placing your order, we strongly advise you to decide on the order type:
Do you want a market order that agrees to buy at the price the website decides, or do you want a limit order that only accepts if the price the website decides is in line with your price? Choose the option that serves you best.
To place a market or limit order, search for the desired stock, choose your option, and purchase as many times as reasonable. Whatever you do, ensure you analyze and monitor previous and future possible returns of the desired stock.
There you have our straightforward method for buying a REIT stock! Remember, you must monitor your investment to understand its nature and know when to sell it off.
Here are the other crucial steps that you should keep in mind:
Understand Tax Ramifications
As with all forms of investments, you must be aware of the tax implications. This can include taxes on capital gains, real estate, rental properties, and other associated levies and taxes.
Before deciding to participate in a real estate investment trust, you should know the potential tax implications.
Select Your Investment Type
Real estate investment trusts provide several types of REIT investment including equity, mortgage, and hybrid stocks. When determining which sort of real estate investment trust is appropriate for you, you should carefully assess the level of risk, financial objectives, goals, and ambitions.
Consult a Specialist
If you are uncertain about investing in real estate investment trusts, it is preferable to consult a professional. An experienced professional in real estate investing can give you investment advice and assist you in making a corporate-level informed decision.
Best Nigerian REIT Firms
When it comes to purchasing real estate investment trusts in Nigeria, the following financial organizations are considered the best:
Stanbic IBTC Asset Management Company
Stanbic IBTC Asset Management Company is a branch of Stanbic IBTC Holdings Plc. It is experienced enough to manage UPDC while providing its investors with various investment services and expertise.
This REIT firm is known for educating investors so that investors are in the know most of the time and has collected its massive share of recognized awards. More, it is SEC recognized and mainly publishes nearly accurate foresight info on REIT stocks.
UACN Property Development Company Plc (UPDC)
UPDC REIT is a part of UAC of Nigeria Plc and is one of the most influential investment options that offers its investors mouth-watering stocks for trading on the NSE platform. It invests in real estate activities, even in the development stage, which enables the company to have several REIT stocks available for trading.
Don’t worry; UPDC has several properties in Lagos and Abuja available for stock trading in the NSE platform and is an SEC-approved company.
Chapel Hill Denham
Chapel Hill Denham is an investment banking and asset management firm in Nigeria that provides investors and corporate clients with various financial services and solutions.
They can manage your portfolio, give you insights into the possible outcomes of your intended investments with their real estate expertise, and are known to collect credible awards each year; therefore, they are a safe company to have on your REIT investment journey.
Types of Real Estate Investment Trust
Real estate investment trust is a popular type of real estate that allows individuals to invest in real estate without the stress that comes with the direct ownership of a physical property in the real estate industry. There are various types of real estate investment trusts that investors can choose from. They are:
Equity REITs
Equity REITs are the most commonly purchased type of REIT. Mainly because it primarily deals with fast income-generating properties such as apartments which may increase in value due to overall property appreciation.
Mortgage REITs
Mortgage REITs (mREITs) are estate investments that deal more with mortgage or mortgage-backed securities or loans. This means earning through REITs by indirectly lending money to individuals who buy properties on credit from the REIT firm.
In simpler terms, when you buy a mortgage REIT, you will earn money as the lender pays the agreed interest, i.e., you earn through interest payments.
Private REITs
Private REITs are privately owned and managed stocks that are not publicly traded on a stock exchange because they are yet to be SEC-registered. Typically, they have fewer regulatory requirements and may offer higher potential profits, and are generally less accessible to individual retail investors.
Additionally, they are available only to accredited investors who meet certain net worth or income requirements and are subject to limited redemption options.
Public REITs (Real Estate Investment Trusts)
Publicly Traded REITs are investment stocks that are openly listed and traded on stock exchanges, allowing investors to buy and sell shares in the open market of NSE. As an advantage, publicly traded REITs are easily accessible.
They are also subject to regulations mainly because they are SEC-registered and must distribute a significant portion of their earnings to shareholders in the form of dividends to maintain their tax status as a REIT.
Non-Traded REITs
Non-traded REITs are stocks only sold by brokers or financial advisors in private offerings. Although these REIT offer benefits such as long-term investment plan, more control, and direct access to professionals, they attract more upfront expenses and is less liquid when compared with the other types of REITs.
Hybrid REITs
Hybrid REITs combine the characteristics of both equity REITs and mortgage REITs. They invest in a mix of income-generating properties and real estate loans. By diversifying their investments, hybrid REITs aim to generate income from both rental payments and interest payments.
Advantages of REITs
Real estate investment trusts (REITs) can be an excellent real estate investment vehicle for people seeking portfolio diversification, income, and/or capital appreciation. Among the many benefits of REITs are:
- Low minimum investment.
- Access to professional management and recommendations.
- Diversification of risk to reduce your overall risk exposure.
- Potential high-yielding passive income.
- Investors can readily purchase and sell REIT shares on the stock market.
- Tax advantages such as the exemption from corporate taxes on distributable earnings.
Disadvantages of REITs
Real estate investment trusts (REITs) can be an excellent real estate investment, but there are some possible negatives to consider. Among the downsides of investing in REITs are the following:
- As an investor, you may have less influence over any REIT company’s decision-making process.
- Like other types of investments, real estate investment trusts are susceptible to volatility and market risk.
- Some real estate investment trusts concentrate on real estate investments in a certain geographic region, which might restrict diversification.
Frequently Asked Questions on The Most Straightforward Guide to Buying REITS
How Do I Start Buying REIT?
To start buying REIT, do some research, choose an affordable brokerage platform, and fund your account so that you can start placing orders for your preferred type of REIT.
How Much Money Do You Need to Invest in REIT?
You need more than two thousand dollars (1 million Naira) to start investing in profitable REITs. This is because of factors such as the stock prices, minimum investment requirements of the brokerage firm, your portfolio investment strategy, etc.
How Does a REIT Pay You?
A REIT pays you (their investor) through periodic distributions of profits in the form of cash dividends. Fortunately, most REIT firms permit investors to re-invest dividends so that their returns can compound over time.
How Do I Invest in an Investment Trust?
You can invest in an investment trust, i.e., a close-ended stock, through an individual stockbroker, a real estate agent, or a brokerage platform.
What Are the Risks of an Investment Trust?
Here are a few common risks of an investment trust: investment performance risk, control risk, market risk, capital risk, etc. So when investing, ensure you consider your risk tolerance and the needful.
Conclusion
Investing in real estate investment trusts can be a great way to diversify your real estate portfolio, generate income, and potentially benefit from capital appreciation.
But honestly, it is still important to do your research and understand the different types of real estate investment trusts, as well as their potential advantages and disadvantages before investing.
Please note that you are free to consider investing in other types of real estate investment such as mutual funds and Real Estate Crowdfunding. With this article, we hope you have a clearer idea of how to purchase a REIT stock.
