How to invest in a Real Estate for less than Rs 60,000? – REIT
With a dip in real estate, this market has become an attractive investment bet!
If you have a constraint w.r.t your budget and that is what stops you from getting into it, then congrats you have just found the right place for you. Here we will discuss how to get into real estate for less than Rs 60,000 and no loan.
Despite great returns over decades, what stops the majority of people from getting into Real Estate is the investment size. This often leads to taking up loans which are a nightmare for some people. On top of that managing, the whole asset is tedious, if you expect some regular cash flow out of it.
As discussed in our videos (check it out), this is a part of the series indicating where to invest your hard-earned money during this recession.
Real Estate Investment Trust (REIT)
Well, there’s a way to own real-estate without investing in individual properties. Opting for units of a Real Estate Investment Trust or REIT. Though this concept of investing is novel in India (started last year in 2019), this investment instrument has amassed great wealth with its proven records in the U.S. since 1960.
A REIT is a company that owns, operates & finances income-generating real estate whether commercial or residential. Similar to mutual funds, capital is pooled in from various individual investors. This makes it possible for investors to earn dividends (taxable) from real estate without buying, managing, or financing any piece of estate themselves.
Inception of REIT
The first-ever REITs were created in the U.S. in 1960. These were designed for people to own a piece of large real estate portfolios. Since then, they’ve got very popular and today publicly available REITs in 35 countries value at over a $ Trillion. They are historically one of the best performing asset classes.
Since 80% of the assets in REITs need to be operational and revenue-generating, it can be considered relatively safer compared to other investment bets. It’s just like owning a physical investment property. The only difference is that someone else is managing and looking after all the nuances of the underlying asset.
The USP for investors is the income-generation aspect. As per the norms, REITs are required to pay at least 90% of taxable income to the investors as dividends.
However, in the U.S markets, historically some REITs have paid more than 95% of income out to shareholders.
How much did previous REIT make for investors?
Let’s have a look at the “total return” by combining the dividend returns along with the share price movement.
So far, only 1 REIT has been listed on Indian stock exchange i.e Embassy Office Parks (listed in March 2019). The investment price was Rs 300 with a lot size of 800 units making the minimum investment Rs 2.4 Lacs.
As of today (July 25, ’20), the value of each unit stands at Rs 367. Also, Rs 18 has been received as a taxable dividend per unit. The minimum investment now stands at Rs 3,08,000 ( Rs 2,93,000 + Rs 14,400 dividend). This is more than 25% annualized return, that too in times of this pandemic where BSE Realty Index has gone down by 20%.
Next Opportunity / Investment less than Rs 60,000 in REIT
You can always buy the available Embassy Office REIT from the secondary market. What if we tell you there is another upcoming opportunity in a few days.
K Raheja & private equity major Blackstone Group is coming up with another REIT known as ‘Mindspace Business Parks’ on 27th July for Rs 275 with a minimum lot size of 200 making the investment size of Rs 55,000 or its multiple. The firm holds a quality office portfolio including various business parks with a total leasable area of 29.5 million sq ft. These offices are spread across Mumbai, Pune, Hyderabad, and Chennai.
Due to the current Corona pandemic, the commercial real estate market & thus REITs may face some difficulties on rental cashflows for some duration. However, India is one of the top IT outsourcing destinations worldwide for its great talent pool. Due to this reason, prime commercial real estate should continue to show strength with low risk and high return asset class.
With investment in REIT, you generate income from the rent of underlying offices. Then there’s also the market value of the property itself that usually increases in value over time.
So even if you’re not making handsome profit through rent after paying taxes and upkeep, you may experience a return through the appreciation of the property. Or it could work vice versa.
Types of REITs
Like properties, REITs also come in a lot of different ways. For example…Retail REITs invest in shopping
malls and retail outlets. Residential REITs contain apartment complexes and manufactured housing, and Office REITs office building complexes.
Yes, it’s special about owning your property, taking care of it & living in it but if you live in a city where property values are inflated, or you don’t plan to stay in one place for very long, REITs could be a way to get into the real estate market for as little as a Rs 55000. Mindspace is India’s second-ever REIT and there will be many more in the future.
The idea behind this article was to give you a brief idea about REITs. We will come up with similar content in the future from an investment standpoint.
Here’s our video on Real Estate analysis post-2020 Recession:
If you like this article please like, share, and comment down below & let us know if you like this way of investing in real estate or if you know of any other form of investment.