ANALYSIS: Investing in a Reit versus owning a property directly
Finance: When buying to let, any borrowing is done in your personal capacity, which introduces the risk of default, being blacklisted and potentially losing more capital than you put in. When buying property stocks, the borrowing is done by the Reits themselves. Therefore, there is no debt in your personal capacity and thus no risk of default.
Interest rates: A rise in interest rates will directly impact your borrowing rate and your monthly repayments. When investing in Reits, the interest rate needs to be addressed by the Reit and not by you. Many of the Reits are hedging, or have already hedged, a portion of their interest rate exposure to minimise their risk in an increasing interest rate environment.
Vacancy risk: When you own a property, you face the risk of your tenant leaving, cancelling or not paying. When any of these things occur, you lose rental income and need to spend valuable time and resources finding a new tenant. Reits also have vacancy risks. However, Reits have professional management companies in place to avoid vacancies and vacancies are spread over a larger portfolio, reducing your income risk.
Rental income versus Reit distributions: Both rental income and distributions from Reits are not guaranteed. Reits obtain their rentals from a diversified portfolio, reducing the risk of zero distributions.
Diversification: If you buy real estate yourself, you will typically be able to afford only a single property. Reits provide immediate diversification across a number of locations (including offshore) and property types, including industrial, warehousing, offices and shopping centres.
Liquidity: Rental properties are not liquid, and it can take months or even years to sell a rental property. Reits are liquid investments that can be easily converted to cash timeously and without paying excessive fees.