People are starting to like Real Estate Investment Trusts, or REITs, as a way to invest in real estate. They are especially interesting for Nigerians who have a lot of money. How do REITs work? Why might real estate investment trusts in Nigeria be good for you? That’s what this guide is all about.

What are REITs?

A REIT is a business that owns, manages, or supports income-producing real estate, such as housing buildings, hotels, shopping malls, and office buildings. Investing in a REIT is like buying stock in the company, which means you can own a piece of property without taking care of it yourself.

How do REITs work?

Many people put their money into REITs, which then buy and manage real estate properties. These companies make money by renting out these homes and sometimes selling them for more than they paid. This money is then given back to owners as dividends.

3 types of REITs

REITs come in several different types, each with its own main goal. These are the important ones:

1. Equity REITs: These REITs own and run properties that generate income. Most REITs belong to this group.
2. Mortgage REITs: These REITs buy mortgages or mortgage-backed securities or give money to people who own real estate. The interest on these loans brings them money.
3. Hybrid REITs: Hybrid REITs are a mix of stock and mortgage REITs. They own homes and put money into debts.

Why investing in REITs is a good idea

There are several reasons to invest in REITs:

• Diversification: REITs lower their risk by investing in several buildings instead of just one.
• Liquidity: It’s easy to buy and sell REIT shares on the stock market but not real estate.
• Regular dividends: REITs pay regular dividends, which are a steady income source. Dividends are a portion of the company’s profits distributed to shareholders, usually quarterly. This can provide a steady income stream for investors. In simpler terms, when a REIT makes money from its properties, it shares a part of that profit with its shareholders, which is called a dividend.
• Professional management: The properties are managed by experienced professionals, such as property managers, real estate agents, and maintenance staff, so you don’t have to deal with renters or repairs.

REITs in Nigeria

The real estate market in Nigeria is growing, and REITs are becoming a popular investment option. Several REITs are listed on the Nigerian Stock Exchange (NSE), which allows buyers to participate in the country’s real estate growth.

How to Invest in Nigerian REITs

It’s easy to put money into Nigerian REITs. These are the steps:

• To do research, look for REITs that are traded on the NSE. Look at how well they’ve done, what kinds of buildings they own, and who runs their business.
• Get a broking account. You need one to buy REIT shares. Pick a provider you can trust to help you through the process.
• Once your account is set up, you can buy shares of the REITs you’re interested in.
• Keep an eye on how your business does. Know what’s happening in the real estate market and with your REITs.

Risks of Investing in REITs

These are the risks that come with investing in REITs. Here are some to think about:

• The real estate market and the business can cause the prices of REIT shares to fluctuate.
• When interest rates change, it can affect REITs. Higher rates can make it more expensive to borrow money and lower the value of your home.
• A REIT’s management team makes it work or fail. If the business isn’t managed well, returns can go down.
• Changes in laws and rules can affect REITs. You should be updated on any changes to the law that might affect your property.

Tax benefits of REITs in Nigeria

There are also some tax perks to investing in REITs. In Nigeria, REITs must give their owners at least 90% of their taxable income. This means they don’t pay much or any business tax. Dividends, on the other hand, are taxed when owners get them. However, the tax rate on these dividends is usually lower than the regular income tax rate. If you want to know how this affects you, you should talk to a tax expert.

3 popular Nigerian REITs

Here are a few well-known Nigerian REITs to give you an idea of what’s out there:

1. Union Homes REIT: This is one of the first REITs in Nigeria. It focuses on residential properties and offers attractive dividends.
2. Skye Shelter Fund: This REIT invests in a mix of residential, commercial, and industrial properties. It aims to provide a balanced and diversified portfolio.
3. UPDC REIT: Managed by UACN Property Development Company, this REIT focuses on commercial properties like office buildings and shopping malls.

4 tips for successful REIT investing

Follow these tips to get the most out of your REIT investments:

1. Spread out your investments; don’t put all your cash in one REIT. Spread your money out among several different REITs and types of land.
2. Read about and follow real estate market news and trends. This will help you choose better investments.
3. Buying a house is a long-term investment. Be patient and avoid making choices based on short-term changes in the market.
4. To help you plan your investments, seeking advice from financial advisors and real estate experts is crucial. Their insights can provide a comprehensive market understanding and guide you in making informed investment decisions. Remember, successful REIT investing is about making the right choices and having the right support system.

In conclusion

Real Estate Investment Trusts (REITs) present wealthy individuals in Nigeria with a promising opportunity to invest in real estate without the complexities of property management. They offer stability, liquidity, and a wide range of investment options, making them appealing. By understanding how REITs operate, their advantages, and their associated risks, you can make informed decisions and potentially earn substantial returns on your investment. Remember to diversify your portfolio, stay informed, think long-term, and seek expert advice to maximize your REIT investments.

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Frequently asked questions about REITs

How can I invest in REITs in Nigeria?

To invest in Nigerian real estate investment trusts (REITs), you should first look into the REITs listed on the Nigerian Stock Exchange (NSE) to learn about their success, properties, and the people who run them. Next, open a broking account with a trusted broker who can help you buy REIT shares. Once your account is set up, you can buy REIT shares like any other stock. It’s essential to keep an eye on your investment and know what’s happening in the real estate market and with the REITs you’ve selected. Getting advice from financial planners or real estate agents can also be very helpful during the process.

How many REITs are there in Nigeria?

On the Nigerian Stock Exchange (NSE), there are a few well-known Real Estate Investment Trusts (REITs) right now. Union Homes REIT, Skye Shelter Fund, and UPDC REIT are some of the most important REITs. These real estate investment trusts (REITs) each focus on different types of properties, like residential, business, and industrial ones. This gives investors a lot of choices for diversifying their portfolios. Nigeria may have more REITs as the market grows and more investors become interested in this type of business.

How much money is needed to invest in REITs?

The fee you have to pay to invest in REITs in Nigeria is based on the price of the shares you want to buy. You can start with the least amount needed to buy at least one share because REIT shares are sold on the Nigerian Stock Exchange (NSE) like other stocks. Because of the value of the buildings they are based on, some REIT shares may be more expensive than others. Consider booking fees and other transaction costs when figuring out your initial payment. Talking to a financial advisor can help determine how much to spend based on your risk tolerance and financial goals.

What is the largest REIT in Nigeria?

The UPDC REIT is Nigeria’s most prominent real estate investment trust (REIT). The UACN Property Development Company runs it. This REIT primarily invests in business properties like shopping malls and office buildings. People like UPDC REIT because it has a wide range of investments and a strong position in the market. This makes it a popular choice for investors who want to enter Nigeria’s commercial real estate market. It is known as the country’s best REIT partly because of its size and strong management.

How do REITs make you money?

You mostly make money from REITs through dividends and stock gains. They make money by buying, managing, or lending money for properties that bring in money, like apartments, shopping malls, and office buildings. In the form of regular dividends, the rental income from these buildings is collected and given to shareholders. In addition, if the buildings in the REIT go up in value over time, so may the value of your REIT shares. This means you can sell them for more than what you paid. REITs are an excellent way to invest because they offer steady dividend income and the chance to make cash gains.

Who regulates REITs in Nigeria?

The Securities and Exchange Commission (SEC) in Nigeria oversees REITs. The SEC makes the rules and standards that REITs must follow to keep the market honest, protect investors, and ensure clarity. This includes rules about how REITs can be set up, run, and managed and how they must report and discuss their finances. By monitoring REITs, the SEC helps make the stock market a safe and reliable place for buyers.