Real Estate is one of the three ways that a person can become wealthy. The other two are Investing (Stocks, Bonds, ETFs, Mutual Funds, etc) and owning your own business.
Real Estate seems to be quite popular at the moment. There are dozens of TV shows about flipping Real Estate. Every year one of the Real Estate Investing Training groups comes through town, extolling the virtues of Real Estate investing.
But, what if you’re not handy, don’t like dealing with contractors, and only have $500.00, and still want to get into Real Estate investing. Is it possible? Absolutely!! That is what REITs are for.
What is a REIT? Here is the definition I got off Google, “A REIT, or Real Estate Investment Trust, is a company that owns or finances income-producing real estate. Modeled after mutual funds, REITs provide investors of all types regular income streams, diversification and long-term capital appreciation.”
Simply put, it is a bunch of people who pool their money to buy, or hold the mortgage or own Income producing Real Estate. This covers a whole spectrum of income properties. Apartments, retail malls, office buildings, warehouses, hotels, or a combination of all of these. If you want to invest in any type of Real Estate, there is likely a RIET that does that. REITs allow you to invest in residential apartment buildings without ever having to worry about having to fix a toilet at 3 AM.
As the definition stated, REITs normally deliver either monthly or quarterly income. Much like a Dividend. The price of the individual REIT units (shares) can also go up and down. I hold SOT.UN, (Slate Office REIT). Over the last 52 weeks it has been as low as $6.80 and as high as $8.90. It pays $0.063 per unit each month. The payment did not change over the last year, even though the unit price did. That monthly payment is income.
When looking at REITs you need to consider several things. What is the REIT invested in? For example, office space in Calgary. If the economy starts to get bad, will the present tenants stay, can you raise rents, will that affect the actual value of the building? All of these things would affect the price of the REIT and their monthly payout. One other thing you can check is the Earnings Per Share. If the Reit is paying out a yearly rate of $0.24 a share, the EPS needs to be at least as high or even higher.
How much, and how often is the income paid. I like monthly payouts better than quarterly. For example, BTB.UN (BTB Real Estate Investment Trust, price $4.56) pays $0.035 monthly and PRV.UN (Pro Real Estate Investment Trust, price $2.10) pays 0.018 monthly. BTB pays more, so it looks like a better buy.
Check the price of the REIT versus the payout. As in the last example BTB.UN looks better. But the price of BTB.UN is almost double PRV.UN. I could buy twice as many units of PRV.UN for the same money, which would make the payout almost equal.
Lastly check the present value compared to the 52 week high and low. BTB.UN is at $4.56. The low is $4.08 and the high is $4.78. PRV.UN is at $2.10. The low is $1.65 the high is $2.40. If the stock is closer to the low, there is a chance it can move to the high and you make more money on the unit price. If it is close to the high, that might be as high as it gets, so the chance of moving higher is less.
I treat REITs just like dividend paying stocks. All the same rules of research apply, and when to buy and sell that apply to stocks, apply to REITs.
REITs are a good way to get into Real Estate investing of major properties, or multiple properties, for not much money. They are also good investments to hold in your RRSP or TFSA. You also don’t have to worry about tenants calling with problems. Because you can get REITs at many different price points, (PRV.UN at $2.10 and HR.UN at $22.65) they are good for Micro Investors and wealthy investors alike.
First published on www.smallcappower.com