First things first,
What are REITs ?
When people invest in REITs, the money is pooled together in a collective investment scheme that invests in a portfolio of income generating real estate assets such as shopping malls, offices, hotels or serviced apartments.
How REITs work ?
What are the different types of REITs ?
- Commercial REITs – Office property
- Retail REITs – Shopping malls
- Industrial REITs – Warehouses, storage space
- Hospitality REITs – Hotels and Lodging
- Residential REITs – Housing
- Healthcare REITs – Hospitals and nursing homes
How does one Identify a promising REIT?
- Distribution Yield
- Net Asset Value(NAV) = Total Assets – Total Liabilities
- Distribution Yield = most recent distribution annualized/ NAV
The higher percentage of Distribution Yield, the higher the income returned from your investments.
2. Price-to-Book Ratio
- Book Ratio per share = NAV/Total Shares Outstanding
- Price to Book Ratio = Current Market Price/ Book Ratio per share
The Price to Book Ratio should be 100% or below, if it is above that percentage, it means that the equity is overvalued.
3. Gearing (Debt-to-Equity) Ratio
- Gearing Ratio = Total Liabilities / Total Shareholder’s Equity
- A gearing ratio higher than 50% is typically considered highly levered or geared. As a result, the company would be at greater financial risk.
- A gearing ratio lower than 50%is typically considered optimal or normal for well-established companies.
Thanks to the inexorable advancements of the internet, one does not have to calculate the previously mentioned metrics !
IT IS ALL AVAILABLE HERE
Wait, before you go !
Remember that we mentioned earlier about the different type of REITs ? Be reminded that one must analyze the current sector’s conditions before making any investment in any of the categories of REITs. On top of that, one should also take into account the management and qualitative analysis of the REIT.
It is not only all about the numbers, learn how to qualitatively analyze a company HERE.
REITs are one of the best ways to accumulate for yourself a passive income apart from your main job. It requires less-monitoring than other stocks as is more passive.
We hope this article has benefited you.
Stay Tuned! Till next time …
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