hey everyone it's kenji here back with some experience type videos and today i want to
talk about reits real estate investment trusts so you're probably wondering what the hell is there
eat and when should i care well we'll talk about that in this video so simply put a reit is a type
of company that invests in real estate on behalf of investors so for instance people like you and
i and thousands of others can put money in a read and in turn that reit is going to buy real estate
and with that real estate it's going to get one rental income and two appreciation in the value
of the real estate so those are the two main ways that they're going to make money through that
now the reason that you should care is that through a read you're able to invest in real
estate so even if you have a very small amount of money like say twenty dollars or a hundred dollars
where you obviously wouldn't be able to pay for an apartment or a house you can still invest in
real estate through this investment called they read right now to give a bit of background reits
only started around the 1960s by u.s president eisenhower and the idea was basically to give
everyone access to real estate portfolios which at the time was only accessible to the rich
right the people that had the money to buy real estate whilst now it's more democratized through
reits and if you're wondering how big reads are they're actually fairly large nowadays according
to blackrock out of the reits that are listed on the stock exchange they own approximately 2
trillion worth in assets which in terms of real estate that equates to around 500 000 properties
all right so i want to break down this video into four main areas the first one has to do with the
investment strategies that reits employ the second one has to do with the types of requirements that
are necessary to become a read so we get a better understanding of that then we look at whether you
should invest whether it's the right thing for you and then lastly we'll look at how to invest
if you actually decide to do so so when looking at the investment strategies there's really two main
types of reads the first one has to do with equity rates and the second one with mortgage rates
so let's first look at equity reads and these basically have everything to do with owning a
property so a typical business model for them could be something like buying a property and
then leasing it out to as office space say to a company and then they would obviously get rent
from the tenant in this case a company say and that rent they would basically distribute out
to their shareholders as dividends and that's the basic business model and that might be for
commercial real estate like what might be office space or shopping malls hotels things like that
or residential real estate like say apartments or houses right so basically they make money by
renting out the property and another way that they make money which is more secondary is through the
appreciation of the real estate right if the real estate goes up in value over time that's another
way that they've made money so a second type of read has to do with mortgage reads and oddly
enough these don't actually own any real estate instead they focus on the financing side of real
estate so it could be things like mortgages interest rates mortgage-backed securities
and other things like that that's what they focus on so basically they make their money by
earning interest on the investment and as for which is more popular among the two
it's definitely equity reads that are more popular and they're more much more widespread basically
so on a macro level those are two main types of reads but they're actually usually focused
on a specific industry group so for instance there's reach that focus just on hospitality so
things like restaurants and hotels other reads focus on healthcare so things like residences
or hospitals there's even reads for their own prisons for instance so there's really a wide
array of different reads and some are also more geographically focused so for instance they invest
in a specific country or a specific region now to give you a better idea of reads let's look through
some of the requirements that they need to qualify as a read there's really quite a few actually so
let me just give you some of the main ones the first one has to do with investing at least 75
of your total assets in real estate another big one has to do with at least having 90 of your
income go through to dividends for shareholders another one has to do with having a minimum
requirement of 100 shareholders say and there's a bunch of other ones but i don't really want to
bore you with that now all these requirements seem like a pain so why not what they want to
become reads and that basically has to do with tax benefits see a normal company has to pay what's
called corporate tax and that's usually around the 20 to 30 percent mark whilst for reads they don't
pay any corporate tax at all and so that's why reits as a whole have grown so much over time so
now that you have a better idea of what reads are let's look into whether you should invest in them
so generally when you invest in something you hope that it's going to be something that
people are gonna want to buy and that is going to be generating money over time
so in the case of registered for instance land is limited the population is typically increasing
around the world and thirdly people need a place to live right and they probably always will
and so that makes realistic quite an attractive investment also with most real estate the cash
flows are actually fairly stable right when you sign a lease for instance you know for how long
it's going to be and how much you're going to have to pay each month so from an ownership perspective
that's that's very good you can model all your all your cash flows and you can see exactly how
much you're going to make right and if you're curious about the performance of stocks versus
reads i pulled up this chart for you you can see here it basically shows that reits have actually
outperformed stocks um throughout a 20 year period obviously in the future no one knows what's going
to happen but at least in the past they've done fairly well so i think of rates not just as a good
investment but also a good way to diversify right basically through you own real estate even if say
you don't have the money to buy an actual house and so that's a good way to diversify away from
say just owning shares in the stock market so what are some of the risks they can't all be good right
well obviously you know what there's some risks out there i'd say that the main one has to do
with picking the wrong wreath essentially so for instance if you pick a read focused on healthcare
and all of a sudden people stop becoming ill then you've got a problem there right or on the other
hand the one that's actually a real case example has to do with self-storage warehouses there's
been an oversupply of them and obviously there's not as much demand and the kind of reit hasn't
done too well another risk includes just the general economy right when the economy is doing
poorly that basically means that people can't pay their rent sometimes or they're not willing to buy
a new property and so for a read that's obviously not good and there's many other risks so i'd say
it's worth doing your research on that sense all right so suppose your research you're convinced
that reits are good for you they're the right investment for you so how the hell do you invest
well basically it's just like any other share right when you buy apple chairs you probably go
through your local broker and the same applies to reads right you just go through your local broker
and that reads should be there so let's look at an example here's a list of publicly traded reads in
the us and let's just pick say boston properties so you can see and obviously just like any other
share of apple for instance they also have their share price disclosed and they have what kind of
revenues they made what kind of industry they're in and so on and so forth so it's really just like
any other company except that you're investing in real estate if you're not sure which read to buy
in particular you can just get an etf which stands for an exchange traded fund and what it basically
does is it bundles the rates for you any exchange you have to pay them a small management fee which
is usually around the 0.2 percent mark so it's really quite marginal a big one for instance
is the blackrock eyeshares global etf so this one just invest in reads and depending on the
rates performance they have different weights as you can see here and as for minimum requirements
there are none you can just put in 20 dollars if that's all you have or you can go all in and put
10 000. so yeah overall i'd say that reits have done a great job of making real estate accessible
to anyone regardless of how much money you have so that's all for this video thank you for watching
if you enjoyed it feel free to like and subscribe and i'll hopefully catch in the next one you