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How to secure an income from property without buying it

by , 07 May 2015

Property is a good long-term investment. But if you don't have the cash to invest in property to rent out or you don't want the hassle of managing property, what are your options?

One way to gain exposure to property without buying it is to invest in real estate investment trusts (REITs). One of the big bonuses of investing in REITs is they must pay out a large chunk of their rental income to shareholders.

Let's take a closer look at how REITs work and why you should consider investing in them…


What are REITs?


At the end of 2012, property investment companies listed on the Johannesburg Stock Exchange got the chance to change their listing status to REITs.

The target of REITs were large landlords, in other words companies that specialise in renting their properties out.

By becoming a REIT, these companies can take advantage of some tax benefits. These companies don’t have to pay corporation tax on their rental profits.

In return for these tax benefits, a REIT must pay out 75% of its profits from rentals to its shareholders.


Investing in REITs


If you’re interested in investing in REITs, just like investing in any other company, you need to do your homework. Not all REITs are profitable companies. And if there are no profits, there are no dividends for you as an investor.

One key thing to check before investing in a REIT is the company’s property portfolio. You want to invest in REITs with the best chance of renting out their properties over the long-term.

You want to see properties in areas where demand will likely remain high.

Also have a look at the current dividend yield for the REITs you’re looking at. This will give you an idea of how much income the company is returning to shareholders. But don’t base your decision on this alone.

Bottom line: REITs provide you with a great way to gain exposure to property without all the hassle of owning property yourself. But you need to conduct your own due diligence and make sure you invest in REITs with the best future prospects. This will give you the best chance of earning a decent income.

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How to secure an income from property without buying it
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