How to invest with a real estate investment trust (REIT) | moneyfacts.co.uk

Michelle Monck

Michelle Monck

Consumer Finance Expert
Published: 03/11/2020

At a glance

  • A REIT is a firm that specialises in property investment to generate a return.
  • REITs can be held in ISAs, self-invested personal pensions (SIPPs) and Lifetime ISAs (LISAs), making them tax efficient.
  • REITs must meet specific criteria to qualify as a REIT.

What is a real estate investment trust (REIT)?

A REIT is a property investment firm that in the UK is listed on a stock exchange. The purpose of a REIT is to generate a profit from its property portfolios and generate a return for its shareholders or investors. REITs were introduced in the UK in 2007 and are exempt from corporation tax on profits generated from rental income and the income from the sale of rental properties.

How does a REIT work?

A REIT allows investors to pool their funds, which the REIT uses to invest in property to generate an income. Any profit that results is then shared with investors as dividend payments. Investors can hold these investments in an ISA, SIPP or LISA, making them very tax efficient.
There are more than 50 REITs listed on the London Stock Exchange with a value of around £54 billion.

What are the best REITs in October 2020?

 

We have selected the best-performing REITs across Europe, Specialist, UK Commercial, UK Healthcare and UK Residential based on the performance of a £1,000 investment over six months up to 1 October 2020. Please remember that past performance is no guide to the future. Investing should be considered as a long-term undertaking.

Investment property trust

Region or sector

Return generated over six months on £1,000

Aberdeen Std Eur Logistics Inc

Europe

£1,202.87

Alternative Income REIT PLC

Specialist

£1,106.36

Tritax Big Box REIT Plc

UK Commercial

£1,414.38

Impact Healthcare REIT PLC

UK Healthcare

£1,112.02

Triple Point Social Housing REIT PLC

UK Residential

£1,206.31

Source: Lipper/Moneyfacts Investment Life and Pensions Magazine
Note: the table above is ordered by the best performance in each sector up to 1 October 2020 over the previous six months.

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What are the different types of REITs?

The majority of REITs are equity based. This means that the REIT is listed on a stock exchange and invests in property to generate an income. Mortgage REITs provide finance to purchase property and generate income from the interest generated. There are also REITs that are listed on a stock exchange but do not trade and those that remain private and are not listed on a stock exchange.

How to qualify as a REIT

REITs need to meet specific criteria to qualify as a REIT, which includes distributing 90% of their net property rental income to investors.
To be eligible as a REIT in the UK, the firm must hold at least 75% of its gross assets in rentals and generate at least 75% of its profits from these. The REIT must own at least three properties and no individual property can be more than 40% of the fund’s total asset value.

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At a glance

  • A REIT is a firm that specialises in property investment to generate a return.
  • REITs can be held in ISAs, self-invested personal pensions (SIPPs) and Lifetime ISAs (LISAs), making them tax efficient.
  • REITs must meet specific criteria to qualify as a REIT.

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