This article shows you how to earn income through real
estate investment trust. Real Estate Investment Trust income opportunity wasn’t
available in East Africa before October 2015.
Here are facts you need to know about a Stock Exchange
listed REIT:
1.
What is a Real Estate Investment Trust?
A real estate investment trust (REIT) is a company that
invests in real estate through property ownership or mortgages. REITs must
trade on a stock exchange such as Nairobi Securities Exchange.
2.
What is the mandate of a REIT?
Income-producing real estate ownership is the core mandate
of a REIT. This type of investment must produce income for its shareholders in
form of rent and other legal ways. Thus it must purchase, own and operate
commercial real estate ventures on behalf of shareholders.
3.
Real Estate Investment Trusts allow you to
invest in property
Since REIT shares trade on the stock exchange any investor (big
or small) can acquire ownership in profitable real estate ventures. This in
turn enables you to earn rental income from real estate ventures.
REITS can purchase and legally own commercial properties
such as apartment complexes, office blocks, hospitals, hotels, warehouses,
shopping malls, residential properties, etc.
4.
Real Estate Investment Trust ownership
A REIT must be owned by at least 100 shareholders. Five
shareholders can’t own more than 50% of the company shares.
5.
REIT investment guide line
By law a REIT is not allowed to invest more than 25% of its
assets in non-real estate investments. That means 75% of a real estate
investment trust assets must be invested in real estate ventures.
6.
REIT income rule as defined by law
75% of a company’s gross income must come from real estate
investments.
7.
How does REITS pay you?
The law requires a REIT to maintain a dividend pay out ratio
of at least 90%. If the company makes a net profit of 900 million, 90% of this
amount must be paid out to shareholders in form of dividends.
This is the reason it’s the favorite for income-seeking
investors globally.
How to make money with real estate investment trust?
Most of the earnings are from rental income. You own part of
a building indirectly. You are a landlord. To increase your share of rental
income you must re-invest your profits. This allows you to increase your
shareholding power.
a)
Compounding
Most REITs have dividends re-investment plans. These plans
allow you to compound returns over time. Compounding enables you to grow an
initial small investment to a huge one.
Thus if you are a small investor compound your earnings instead
of cashing out.
b)
Continue purchasing MORE shares
Continue buying more shares regularly. This will increase
the number of shares you own. The more shares you own the more dividend you
earn. Small regular investments over time will make you a bigger investor
with time.
This information is specifically about a stock exchange
listed Real Estate Investment Trust. A listed stock is liquid. It can be easily
sold or bought. A listed REIT provides you with a stable income stream.
Kenya and East Africa’s first REIT
The first Income Real Estate Investment Trust in the East
African region is Stanlib Kenya Limited.
Caveat:
I’m not promoting any REIT here. This article is meant to
inform only. Seek professional opinion and advice before investing in any REIT.
Thanks
Steve Wanjie
