Guidelines to Follow If You Are Considering Investing in Australian Real Estate Investment Trusts (A-REITs)
For a while now, real estate investment trusts have been a popular investment option for many Australians seeking to expand their investment portfolio. In the past few years, REITs have been profitable because of the rising rental costs. However, it is becoming apparent that the same winds which made REITs such an attractive investment option may start blowing in the opposite direction. However, this does not mean that anyone thinking about investing here should forget it, as a matter of fact, it is the ideal time to make the investment. Here, are a few tips to help you invest properly.
Investigate the REITs premium to NTA
All REITs are structured in a way that allows them to earn rent on their assets. When looking at the premium, you have to weight the cost to benefit. For instance, is earning five percent on their assets, buying shares worth 150 percent of the same asset value will be committing yourself to lower returns. It is advisable to consult a real estate investment expert to advise you about the asset value of the current REITs in the country, as this will help you make an informed decision.
Understand the implication of the REITs debt Load
You need to have a clear understanding of the debt load that a REIT is carrying before you decide to invest in it. If the company has too much debt, there is always the possibility that they will be forced to divest some of their assets or reduce their dividends in case something went wrong. It is also essential to note that REITs with higher interest rates may end up eating into their profit if the debt is high.
Know the location of the assets
It is also important to know the location of the assets which are being managed by the REIT. When the assets are located in prime areas such as city centers, there is an assurance they will get tenants and that the profits will be high. When the area is profitable, rental prices will likely be on an upward trend over time, increasing the assets profitability.
Other things that you must consider before investing in a REIT include the type of assets the company invests in and also the position of the company in the business cycle. All these are issues you can get a handle on when you consult a competent real estate investment expert to help you with the assessment and decision-making process.