The investment in REITs has exploded over the last 15 years. There are now more than 155 REITs held by 600,000 individuals or businesses. This popularity is due to the return of performance REITs displaying over a 20-year period an average annual return of 6%. This is an investment that enables to receive regular income and have low volatility. A remote reality from that of the financial markets, which over the same period have experienced two major crashes. There are two main types of REITs: performance REITs who own real estate offices or stores, and tax-efficient REITs that allow the investor to reduce his tax. Buying shares of REITs is to become co-owner of a real estate whose management is delegated.
What to remember: The entrance to a REITs ticket is around €3,000. It is recommended to invest 100% on credit. This is a secured investment and protected from inflation. This is an excellent way to diversify its assets. For companies, REITs are used to boost cash.
Performance REITs in 6 points
Yielding REITs have professional real estate: offices, shops, businesses… They allow investors to position themselves on not easily accessible markets, for an entrance ticket of a few thousand euros.
By buying shares of performance REITs, you become co-owner of a huge housing estate rented by hundreds of tenants. This diversification of property, tenants, and geographical, ensures investor protection against rental risks.
The investor of performance REITs is remunerated by receiving quarterly rents and investment income generated by the boosting of the treasury of the REIT. Finally, it may at any time sell its shares, and if that’s the case, realise a capital gain.
The owner of shares of REITs is removed from any management constraints. In exchange, operating costs are levied on gross rents. Whatever the intermediate non-negotiable fees are collected at outset (between 8 and 10%).
To optimise performance, the investment must be made on credit. However, do not give in to pressure from banks that try to impose their in-house REITs for obtaining the loan. A good professional will find you fitting solutions.
For businesses, investing in performance REITs can boost cash. It will be implemented in dismemberment: the company pays 20% of the value of shares, receives 100% of the performance and can, accounting wise, amortise the investment.
The three major tax-efficient REITS
The « Duflot » REITs invest in new rental properties that respect the characteristics of thermal performance, as well as regulations on their geographical location, the level of rent, and the resources of their tenants. In becoming the owner of shares of « Duflot » REITs, the investor benefits from a tax reduction of 18% of the investment spread over 9 years.
The « Malraux » REITs specialise in the rehabilitation of buildings in specific areas and offer an immediate tax reduction. This tax benefit amounts to 36% of the expenditure incurred by the REIT for the work. The principle is to reduce the imposition of an exceptional year, and then collect rents until the resale of the shares.
The « Déficit Foncier » REITs are specialised in the acquisition and renovation of real estates. They therefore generate charges that create a deficit, which is deductible from other property income of the investor, or, of his total income. The principle is to mitigate the taxation of the investor, who already have property income, or a high income tax rate.