Direct property investment vs property funds vs REITs

[BF2]

We all know a fair amount about buy to let. I'd like to discuss the advantages and disadvantages of other means of property investment.

Property funds:
These are pooled funds that buy and sell commercial properties and collect rents. Presumably you benefit from both rental yield and appreciation, and they are more liquid than BTL. You don't have any management overhead or BoE rate worries but on the downside the buy/sell decisions are out of your hands and you have to pay the management charges.

REITs
By law, they have to distribute at least 90% of their profits as dividends so the yield is expected to be better, but these are traded like stocks in the exchange and I don't fully understand the supply-demand dynamics. Maybe someone here can explain? I don't see any huge benefit over property funds.

All comments welcome.

 

[Baldwreck]

BF2 a big subject - firstly by value, investment in commercial property in the UK dwarfs that in buy to lets and the like.

The property funds (mostly unit trusts) which the man in the street can buy such as New Star - their value is directly correlated to the underlying value of their property assets. In many ways they face the classic conundrum of long term (relatively illiquid assets) but have to offer their investors pretty much immediate redemption. For this reason they are required to carry a certain amount of cash and have limits on their gearing.

REITS grew out of the quoted property sector _ the biggest, Land Securites REIT was Land Securities plc the largest quoted property company - REIT status has certain tax advantages the biggest being almost complete tax transparency (effectively no double taxation) - and it was generally thought that their pricing would more closely follow that of direct funds - and indeed that is what happened in the run up to conversion - however sentiment has switched again and most REITs are now trading at a significant discount to NAV just as the remaining quoted property companies are.

Does that help

 

[fibonelli]

BT2,

There will be many more opportunities in the quoted REITs/non-REITs sector in the event of significant redemptions from the open ended property funds.

I would rather own a REIT on a discount to forward NAV of 30%+ than an illiquid open ended property fund.

Hope this helps.

Fibonelli

 

[BF2]

All good points. I am not still 100% sure about REITS. The way I understad it in my simple mind is that property funds are affected by mainly one variable: the prevailing property situation. REIT prices are affected by that factor plus all the stock market factors.

 

[azeemi121]

hi there,
I am agree with BF2. Property funds really effected by mainly one variable and REIT ups and down prices are affected by that factors and all other shareholders and all stock market factors.

 

[Johnkarner]

In real estate, investment is money used to buy a property to be held for resale or rental income, and there is an element of risk capital.