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Investing for income? Have a look at REITs

by , 27 May 2015

If you invest for income, you'll look at fixed-interest instruments like bonds and dividend paying stocks.

What other options are there to consider? There are estate investment trusts (REITs).

Read on to find out more…

What are REITs?

REITs are a special way to structure property holdings. In return for a property company agreeing to pass on the vast majority of its annual income to its shareholders, it gets handsome tax breaks.

And this means REITs can pay excellent dividends, Dr David Eifrig in Daily Wealth explains.

The main advantage of investing in REITs is they offer you a way to invest in property without having to deal with any of the management of it yourself.

And as they trade on the stock market, you can choose to sell them whenever you want. This is very different from owning property yourself as it can take some time to sell on.

The impact of rising interest rates on property

REITS tend to perform fine when interest rates start to rise.

Looking at the US market (as REITs are a relatively new addition to the JSE), during three periods of rising rates since 1993, REITS performed well each time, taking into account rises in share prices and dividends paid.

The performance of the economy does have a bearing on the performance of REITs. If the economy is doing well, there’s likely to be higher tenancy rates, higher rents and larger profits.

And this offsets higher interest rates. The Reserve Bank has hinted that rate hikes may be on the cards later in the year.

Economic growth is plodding on in SA, but forecasts indicate it will start to pick up.

And when inflation is rising (like in SA at the moment), a great way to hedge this is investing in property.

Of course, investing in REITs requires the same analysis as investing in shares. You can’t go investing blindly. Look at the portfolios of different REITs to weigh up which ones are likely to see the best performance.

By investing in REITs, you can boost the income from your investments.

So there you have it. If you’re investing for income, have a look at REITs.

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Investing for income? Have a look at REITs
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