Real estate has long been regarded as a valuable asset class, and for good reason. Its potential for steady income generation, long-term capital appreciation, and portfolio diversification benefits, has made it an attractive investment option for individuals looking to build a diversified portfolio and to grow their wealth. To make this asset class and its benefits more accessible to a wider cross section of investors, real estate investment trusts (REITs) have been created and have been growing in popularity in recent years. These companies or trusts are formed to pool investors’ money and collectively purchase real estate assets. This therefore eliminates the need for an individual to find significant amounts to finance property purchases. Although investors do not directly purchase stakes in the properties, they have indirect ownership of the assets, which are actively managed by a fund manager on their behalf. One such REIT accessible to investors is NCB Capital Markets Limited’s REIT (NCBCM REIT). Let us explore how this and other REITs can help you to build your wealth brick by brick.

One of the main ways that investors benefit from investing in REITs is through the increase in the value of their investments, via the capital appreciation of properties purchased by the trust. Individuals investing in a REIT indirectly own a portion of the underlying real estate assets. As the value of these properties increases over time, the market price of the REIT shares rises, resulting in capital gains for investors. There are many factors that cause real estate value to appreciate including capital improvements, increasing its economic value, demand/supply, inflation, among others. This growth in value enhances investment returns on your share in the REIT, contributing to overall growth in your wealth. For example, let us assume you invest $200,000.00 in the NCBCM REIT that has the potential to deliver up to 35.59 per cent over a three-year period. Assuming you stay invested, at the end of the third year you could earn up to $71, 180 on your investment, bringing your total capital to $271,180. This type of return has the potential to more than beat inflation, as it also expands your wealth. When compared to the returns on a savings account, some bonds, and stocks, or even your ability to purchase your own property, REITs offer investors a seamless way to benefit from the real estate market at a fraction of the cost.

Secondly, REITs make cash distributions to investors which is helpful in reducing or hedging against inflation risks. Some REITs invest in income-generating properties, or other real estate funds that pay dividends to provide a steady stream of cash flow. The NCBCM REIT, for instance, expects yearly cash distributions of about 7.5 per cent. From this, the fund manager will settle ongoing expenses of the real estate portfolio and make quarterly cash distributions to investors. These cash flows also have the potential to appreciate with inflation as higher inflation also pushes up property rents. This rise in cash flow in line with inflation helps them to preserve your capital, and that can be translated to unitholders through increases in the quarterly cash distributions received.

Perhaps this goes without saying, but the most common universal rule to investing is diversification. This brings us to the third key advantage of investing in REITs. The diversification benefit provided by REITs is twofold. REITS allow individuals to gain exposure to a broad range of property types and geographical locations, which would have likely been financially impossible if they were to invest in each directly. The NCBCM REIT holds both residential and commercial assets. Further, although it primarily includes local real estate, there are also some regional assets. By investing in a REIT, investors can spread their risk across different sectors and markets, reducing their exposure to any single property’s performance. Outside of the exposure to a wide range of property types, by investing in REITs you also diversify your portfolio across asset types, preventing total concentration in stocks and bonds. Due to the appreciating nature of real estate and the streams of cash flow it provides, it tends to be more stable and hence faces less volatility when compared to stocks and bonds, making it a great addition to one’s portfolio. REITs should therefore be considered by those people looking to diversify their portfolios, especially given that diversification is a crucial strategy to mitigate risk and protect investment portfolios from volatility. Investors who diversify have the greatest chances of long-term success in achieving their financial goals.

Investors are urged to explore this opportunity to unlock the power of REITs in their investment portfolios, many of which are available in the local market. REITs provide a viable avenue for individuals to grow and protect their wealth through real estate investment. In summarising the benefits, REITs historically have delivered competitive total returns, based on high, steady dividend income and long-term capital appreciation. Their comparatively low correlation with other assets also makes them an excellent portfolio diversifier that can help reduce overall portfolio risk and increase returns. It is essential to note that while REITs offer significant potential for income and growth, they also carry risks. Economic conditions, interest rate changes, and property market fluctuations can impact the performance of REITs. However, thorough research and due diligence in selecting high-quality REITs with strong management teams and a solid track record can help to mitigate this.

Now is the time to give your wealth advisor a call to find out how to take advantage of this opportunity.