Real estate is a great complement to any investment portfolio since it allows you to grow your money while diversifying your holdings. However, there are two major options to consider when increasing real estate investments: investing in individual properties or investing in REITs Philippines.
Basics of Real Estate Investing
Buying a property with the intention of later selling it for a higher price is known as real estate investing. Capital gains are how you make money. Creating a cash flow through rentals is another approach to making money. You might, for example, rent out the basement space in your home to tenants and charge them your monthly mortgage fees. This is known as long-term leasing, and it entails using other people's money to pay for your possessions.
There are a variety of alternative ways to invest in real estate:
- There's the passive approach, in which you buy cheap land and hold it for years until its value has dramatically increased.
- There's also house flipping, which entails purchasing discounted properties, repairing and modifying them, and then reselling them for a profit.
- Then there's wholesaling, which involves acting as a go-between for the buyer and seller of a home.
What is Real Estate Investment Trust (REIT)?
REIT investing is a business that owns, operates or finances income-producing properties. REITs, like mutual funds, provide an investment opportunity that allows ordinary people to benefit from valuable real estate, provide dividend-based income and total returns, and assist communities in growing, thriving, and revitalizing their communities.
REITs enable everyone to invest in real estate asset portfolios in the same way they do in other industries: by purchasing individual business shares or a mutual fund or exchange-traded fund (ETF). A REIT's owners receive a portion of the revenue generated without having to buy, operate, or finance the property themselves.
How do REITs Work?
- Equity REITs are companies that invest in real estate. The majority of REITs are equity REITs, which own and operate income-generating properties. Rents are the primary source of revenue (not by reselling properties).
- Mortgage REITs are a type of real estate investment trust. Mortgage REITs provide money to real estate owners and operators directly or indirectly through the purchase of mortgage-backed securities. The net interest margin—the difference between the income they make on mortgage loans and the cost of funding these loans—is the main source of their profits. Because of this paradigm, they are susceptible to interest rate hikes.
- REITs are a mix of stocks and bonds. These REITs combine equity and mortgage REIT investment strategies.
Pros of REIT
- Dividends are a form of passive income. A REIT's taxable income must be dispersed to investors in the form of dividends at least 90% of the time. As a result, REITs are often well-managed (with low operating costs). Investors can usually rely on them as a source of passive income. Dividend-based income is popularly known in the Philippines.
- REITs are less difficult to acquire. REIT investing is akin to investing in a mutual fund, an exchange-traded fund (ETF), or an individual stock. REIT shares can be purchased through most regular brokerage accounts or, depending on the REIT, through a non-public offering broker.
- REITs Philippines are less difficult to sell. When it comes to selling or liquidating an investment property, the process isn't always straightforward. Your property could sit for weeks or even months depending on the state of the real estate market at the time. There are also agent commissions, closing costs, depreciation recovery, and a slew of other considerations. Selling a publicly-traded REIT is simple; all you have to do is submit a trade request through your brokerage account. Your shares can sell fast as long as buyers are available. (Keep in mind, though, that privately traded REITs are more difficult to sell.)
- The size of your initial investment is up to you. Purchasing real estate can easily cost a five- or six-figure sum (or more!), not to mention the costs of any renovations, maintenance, marketing, or management. A REIT can be a far more reasonable method to invest in real estate if you don't have those types of funds on hand. The investment minimums for some publicly-traded REITs are as low as thousands or even hundreds of dollars. However, many of them have no requirement for a minimum investment. If you want to know more about REIT investing, there are websites that teach you how to invest in REIT Philippines.
Cons of REITs
- There aren't any tax breaks available. Certain tax deductions (such as mortgage interest, property taxes, or renovations) may be available if you own an investment property, thereby lowering your taxable income. However, there are no similar tax savings available in REIT investing.
- You won't be able to express yourself creatively. Some investors simply want their money to grow and earn a profit. Others, on the other hand, appreciate being a part of the "process." Purchasing REIT shares does not provide you any creative power over the investment property that the REIT owns. You won't be able to make decisions or offer input on the property, renters, or risks incurred.
- There isn't a genuine sense of ownership. Investors gain a sense of ownership by owning and maintaining a rental property or commercial structure. They get to see their money at work and watch the project develop - something REITs can't offer. Buying physical real estate may be a better fit for you if you're the type of investor who is motivated by, or values, a personal investment experience.
REIT vs. Real Estate (Condo): Which is the Better Choice?
So, which is preferable: investing in REITs or real estate like condos? The answer, like so many other elements of personal finance, is entirely dependent on you.
For investors who desire a more personalized experience, real estate investing may be the best option. Investing in real estate allows investors to see a project's return in real-time, from start to end. They also have complete creative and management authority, as well as the ability to take advantage of certain tax advantages.
For investors who prefer a more straightforward method, REITs may be a better option. With a REIT, investors can buy shares fast and conveniently with their preferred initial investment. Investors are relieved of the daily stress of vacancies, renters, management, and repairs because the REIT handles the property. REITs Philippines also pay dividends to shareholders, providing a steady stream of income.
Looking for a condo to invest in? Check out Vista Residences!
For more information on Vista Residences, email [email protected], follow @VistaResidencesOfficial on Facebook, Twitter, Instagram, and YouTube, or call the Marketing Office at 0999 886 4262 / 0917 582 5167.