Study The REIT Market Before Taking The PlungePosted by Yoofi Gerard Hagan on Wednesday, February 20th, 2013 at 4:53pm.
Having an RIET, or real estate investment trust, is one way to diversify your financial holdings. Investors are becoming more interested because of the current state of the housing market and its ups and downs. They are also taking a second look because firms such as Allied Properties REIT are making plans to expand into Western Canada, to the tune of $21.3 million.
The primary difference between public and private REITs is their individual structure. A REIT in a public offering takes its valuation on a property’s current market value. That means if an announcement comes along that causes that particular market to decrease and you invest in that particular REIT, you aren’t necessarily purchasing the property’s true value. Private REIT investments have their valuations done based on private appraisal. The properties you are investing in are done so at their appraised value.
Other things to consider with a public REIT include:
Public REITs are publically traded, resulting in fees and commissions being charged. That decreases your unit value. Private REITS are not constantly on the block, thus not racking up these charges. These tend to better hold their value over the long run.
Private REITs make it easier to access your money. If a property in your portfolio shows an increase in value you can take advantage of that by withdrawing funds or by refinancing to provide money for new projects.
Investors thinking of jumping into REITs should seek advice from an accountant or lawyer so as not to miss out on the tax advantages available to those in the securities market. Also, do your research and find out who is managing the REIT you are interested in. Look into their history and the individuals on the management team. You are entrusting your money to that team because once you’ve invested you have no say on how the portfolio runs.
Also look into the lease situation. Putting your money into an REIT that has long term leases with the due dates staggered keeps your cash flow coming in at a steady pace. Avoiding scenarios when all or most leases expire at once could avoid putting a serious kink in your return.