Offering regular cash flow, stable returns and asset appreciation, real estate investment trusts (REITs) and other real estate-based investments play a key role in the private market’s consistent outperformance. REITs give investors access to institutional grade investments in the form of large scale and professionally managed apartment buildings.
“Some investors have income properties or a condo they rent out, but it’s very difficult to take on more than a couple of units if it’s not your full-time job,” says Jason Roque, CEO at Equiton. “When you own your own income properties you end up getting 4am phone calls about broken toilets or you have to deal with a tenant who doesn’t pay the rent.”
The vast majority of investors simply don’t have the funds to buy a 50 unit apartment building, but, even if they did, managing the property would be far beyond their comfort zone.
“REITs offer access to a high-grade investment that is professionally managed and provides stable, resilient returns,” says Roque. “As much as an apartment building or REIT is tied to real estate, it is, ultimately, run like a business. As with any business, you want to increase the top line, minimize expenses and make the business as efficient as possible in order to generate as much income as possible.”
REITs, and apartment buildings in particular, generate returns in three different ways:
- Income and cash flow from tenants’ rent provide a regular, monthly source of revenue
- Equity increase as tenant rent pays down the mortgage, so you own more of the building.
- Building value appreciation over time.
Apartment REITs are assets that work three times harder for the investor’s dollar than something comparable. However, the ongoing performance is reliant on the ability of the REITs’ management team to identify and buy profitable properties.
“We always look for properties where we know we can increase the value rather quickly,” says Roque. “We buy buildings that are undervalued as a result of unprofessional management and then put systems and processes in place that will unlock the intrinsic value and drive up cash flow faster than the market place can alone.”