Invest in REITS : what you need to know

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To invest in REITS (real Estate Investment trusts), several possibilities offer to you. You will be able to access the real estate just, without any regard for management in connection with the detention of one’s own good. Each type of investment in REITS has its own advantages and disadvantages.

The SCPI

This form of “corporate” are funds which collect funds from the public and invest it in rental property. Investors become “partners” and receive the rents received net of expenses just about all quarters. Each year, the value of the real property is valued or estimated. Because of this, if the value of the property has increased, the price of the share increases. On the contrary, if it has decreased, then the price of the share decreases.

Several families

Overall, there are several types of REITS. They do not relate to all the same investments. The most common are so-called performance (SCPI Corum is the leader) who commonly invest in businesses or offices. These companies favour the redistribution of regular income. There are also those called the tax : they are the most numerous. These last take a position on the segments that give rise to the right to tax benefits, as one can discover on Portal-SCPI.

The operation of the SCPI

To understand the functioning and consider this method of savings, it is necessary to appreciate all aspects of it.

Purchases

The purchase of the property (and therefore of the securities in the REIT) is done directly on the primary market through shares issued by companies. It can also be carried out on the secondary market. The buyer acquires the shares sold by the holders. The so-called “fixed capital” are not accessible permanently and are open to the primary market only during a capital increase. Those to “variable capital” are open all the time : these are the managers who manage the closure of subscriptions, when they feel that market conditions are unfavorable.

Resales

Re-sales are made direct with the management companies. For variable-capital SCPIS, the manager chooses to redeem the units at the withdrawal price. This is the current subscription price which are removed the charge. Finally, it cancels it.

When it is a fixed capital, the units in resale are available on the secondary market, which is held by the manager. On this market, the selling price is face directly to the purchase price offered. Acquisition costs acquisition costs of shares are deducted from the value of the sale : it is therefore to be lower than the purchase price at a rate of 10 %. Buyers will be required to retain their shares for two years if they want to come out winners in spite of the 5 % annual yield. They are kept for twenty-two years on average.

The income

As a general rule, the income arising out of the REIT is paid on a quarterly basis, the bank account of the investors. They are then shown as a percentage net of all expenses and expressed on the value of the purchased shares (all fees included). The investor then receives its first revenues in the quarter (integer), the result of the subscription. The income generated by investments in a REIT are taxable as ” income from land “.

The costs

The fees are often high, while being rarely shown in a clear manner. As a general rule, they are 10 to 14 % at the entrance (including a registration fee close to 5 %). These amounts may vary depending on the nature of the SCPI : fixed or variable, and in function of the market on which it was acquired (primary or secondary).

The fees are used to remunerate the management company, which will retain 10% of the rent as ” expenses of management “. For professionals, these charges compare to in real estate acquisitions direct, as well as the cost of their management when it is assigned to a property manager. On the other hand, fees of transfer or withdrawal may be provided and are the responsibility of the buyer. These costs remain more measured.

Investing in REITS

To invest, we must turn to the management company through a bank. It is also possible to get more choice in turning to advisors in wealth management or to specialized websites.

There are four ways to finance an investment in REITS : the credit (loan), investment cash (savings), life insurance or dismemberment. Each of its financing methods has its own advantages and disadvantages. It is advisable then to compare its financial situation and to put it in parallel to his projects of savings and investment to choose the most appropriate option. Each investment is a reflective action that takes into account the study of several elements : debt capacity, long-term vision, need revenue…

Invest in REITS : what you need to know

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