What does REIT

Eight reasons to invest in REITs

Valeria Nickel, January 7th, 2021

REITs (short for Real Estate Investment Trusts, pronounced "Riets") are listed on the stock exchange Real estate joint-stock companieswho invest predominantly in real estate and land. REITs generate income from renting, leasing and real estate sales.

In Germany REITs are a new constructwhich has only been approved since 2007. In the USA, however, they have been around since the 1960s.

What is special about REITs?

The special thing about a real estate investment trust is that it treated with favorable taxation becomes: The profit of the company is not taxed at company level, but only with the investor with the final withholding tax. This means that a REIT is exempt from corporation and trade tax.

In order to benefit from the tax exemption at company level as a REIT, public limited companies must meet strict requirements. In particular, REITs are required to distribute a very large proportion of their profits to shareholders in the form of dividends. In Germany the Payout ratio according to the law amount to at least 90% of the profit in the current financial year (§ 13 REITG).

Because of the high payouts, REITs often have good returns Dividend yield. This key figure, which describes the ratio of the profit distribution to the share price, is often more than 5% per year for REITs. REITs are therefore of interest to investors who pursue a dividend strategy and want to build up a passive income.

REITs are subject to further strict rules:

  • They must be listed on the organized market.
  • REITs must for the most part (at least 75%) invest in real estate and land. The rest of the assets can be in bank balances or other claims.
  • At least 25% of the shares in the REIT must be in free float.
  • German REITs are not allowed to invest in residential properties. Instead, REITs are only available to categories such as shopping centers, office buildings, hotels or hospitals.

Real estate crowdinvesting: high interest, no costs!

REITs offer these advantages

The special real estate AGs offer various options for investors advantages:

  1. Thanks to the exemption from corporation and trade tax, REITs ultimately have one higher return than with classic stock corporations.
  2. Investors can inform themselves particularly well with REITs before investing and the companies are considered trustworthy because they are strict Corporate Governance Regulations (IFRS, disclosure requirements).
  3. REITs are similar to open-ended real estate funds. However, they have the advantage that they are so quick and easy traded like stocks on the stock exchange can be.
  4. There is no front-end load as there is when buying fund units, only the usual fees for share trading - REITs also benefit from one favorable cost structure.
  5. Since REITs invest primarily in real estate, they offer a better one Inflation protection, because real estate represents a real asset.
  6. In addition, REITs have a low correlation to bond and stock markets and are therefore a hedge against price fluctuations on these markets.
  7. The companies invest in a large number of objects and diversify so the risk of capital loss for investors is usually better than open-ended real estate funds.

    Tip: There are even ETFs for REITs that map REIT indices and thus add even more properties to the portfolio.

  8. The REIT market offers good prospects: In its study “2021 Global REIT Outlook”, the investment company Hazelview Investments predicts a return of between 15% and 20% in 2021.

Conclusion

Overall, REITs are an interesting one Hybrid product: As "real estate stocks", they combine the advantages of equity investments (constant availability on the stock exchange, liquidity, low transaction costs) with the properties of open real estate funds.

The disadvantage of the proximity to equity investments is that the prices of REITs are prone to fluctuations and are sensitive to interest rate increases. In order to protect themselves from nasty surprises, investors should pay particular attention to the selection of REIT stocks. These are characterized above all by an experienced management that knows the specifics of the local market well.

As with REITs, small investors can also invest in real estate in an uncomplicated and diversified manner via crowd investing. At BERGFÜRST, investors can invest in real estate for as little as € 10. In contrast to the fluctuating prices and dividends of a REIT share, investors receive a fixed interest rate of 5.0% to 7.0% p.a. on real estate investments such as BERGFÜRST brokers.

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