The different types of REITs: How to choose?

Real Estate Investment Trusts (REITs) are investment vehicles that allow access to the real estate market by pooling the investments of multiple savers. REITs offer investors the opportunity to diversify their portfolio while generating regular income in the form of rents. However, there are different types of REITs, each with its own characteristics. This article will help you understand the different types of REITs and choose the one that best suits your investment goals.

The main types of REITs

There are several types of REITs, each with a specific investment strategy:

• Income REITs: These REITs mainly invest in commercial properties (offices, shops, warehouses) and aim to generate regular income for investors. They generally offer a stable return, ranging from 4% to 6% per year. For example, a REIT investing in offices in Paris could offer a 5% return with quarterly rent distribution.
• Tax REITs: These REITs allow investors to benefit from tax advantages by investing in real estate eligible for tax relief schemes, such as the Pinel law or Malraux. The return is often lower than that of income REITs, but tax savings can offset this difference. For example, a REIT investing in housing in a Pinel zone can offer an income tax reduction while generating rental income.
• Value-Added REITs: These REITs focus on acquiring properties with high value appreciation potential. They aim to achieve significant long-term capital gains rather than generate regular income. This type of REIT is suitable for investors looking for high long-term profit potential.

How to choose the right REIT?

To choose the REIT that best suits your goals, several criteria must be taken into account:

• Investment objectives: If you are looking for regular income, income REITs are a good option. If you want to reduce your income tax, tax REITs are more suitable. For a long-term investment with value appreciation potential, value-added REITs should be considered.
• Return: Analyze the return offered by the REIT, taking into account management fees. A net return between 4% and 6% is generally considered attractive.
• Liquidity: The liquidity of a REIT depends on demand in the secondary market. Some REITs offer share redemption solutions, but it is important to check the exit conditions before investing.
• Quality of assets: The quality of the real estate assets held by the REIT is crucial. Well-diversified assets, located in dynamic geographical areas, offer better security for investors.

Real-life examples

Suppose you invest €10,000 in an income REIT offering a net return of 5%. You can expect to receive €500 in annual rental income, distributed quarterly. If you prefer to reduce your income tax, you could choose a tax REIT investing in the Pinel law, allowing you to benefit from an income tax reduction while receiving rental income.

Laws governing REITs

REITs are governed by the Monetary and Financial Code, as well as regulations from the French Financial Markets Authority (AMF). They must comply with strict rules regarding management, diversification of assets, and transparency towards investors. Tax REITs are also subject to specific tax schemes such as the Pinel law or Malraux.

Conclusion

REITs offer an opportunity to invest in real estate while benefiting from professional management and risk pooling. The choice of REIT depends on your investment goals, whether it is to generate regular income, benefit from tax advantages, or achieve long-term capital gains. By analyzing criteria such as return, liquidity, and asset quality, you can choose the REIT that best suits your needs and optimize your real estate investment strategy.