What is a real estate trust and investment fund?

Abstract: What is a real estate trust and investment fund? Real estate trust and investment funds (REITs) are an important means of real estate securitization. Real estate securitization is a financial transaction process that directly transforms illiquid non-securities real estate investment into securities assets in the capital market. Real estate securitization includes two basic forms: real estate project financing securitization and real estate mortgage securitization. The following introduces the risks and advantages of real estate trust and investment funds. What is a real estate trust and investment fund?

Real estate trust and investment funds are financial products that pool the funds of individuals and institutional investors and invest in real estate assets or related securities that can generate stable cash flow income.

Products are managed by a specific asset management company and managed by a special fund custodian; After the issuance, it is generally chosen to be listed and traded in the securities market, and the trading method is the same as that of stocks.

Real estate trust and investment fund asset management companies can effectively reduce risks by diversifying their investments, choosing different real estate securities and different types of real estate projects and businesses for portfolio investment, and distribute the income generated by renting real estate to investors in the form of dividends, so that they can obtain long-term and stable investment income.

Second, the classification of real estate trust and investment funds

According to the nature of business and sources of income, real estate trust and investment funds can be divided into three types: equity real estate trust and investment funds, debt real estate trust and investment funds and mixed real estate trust and investment funds. Among them, equity real estate trust and investment funds directly invest in real estate, and the main source of income is the rental income of real estate or the capital gains from the disposal of real estate; Debt-based real estate trust and investment funds provide mortgage loans to developers or real estate managers, or invest in real estate mortgage securities, with interest income or return on securities investment as the main source of income; Real estate trust and investment funds that engage in the above two types of business and collect the income from the above two types of business are called mixed real estate trust and investment funds. At present, debt-based real estate trust and investment funds only exist in the United States, accounting for less than10% of the total market size of real estate trust and investment funds; There are even fewer hybrid real estate trust and investment funds, only less than1%; In addition to the American market, real estate trusts and investment funds in other countries and regions are equity-based.

In addition, real estate trusts and investment funds are divided in other ways. According to the organizational structure, real estate trust and investment funds can be divided into company type and contract type; According to the way of issuance and listing, it can be divided into three types: public offering and listing, public offering and unlisted transactions and private placement. According to management methods, it can be divided into internal management and external management; According to the operating period, it can be divided into two types: regular and irregular; According to whether it can be redeemed after issuance, it can be divided into open and closed types.

Third, the advantages of real estate trust and investment funds.

In recent years, real estate trust and investment funds are increasingly favored by investors, and their advantages can be summarized as follows:

1. Make real estate investment small, mobile and simple. Because real estate investment involves a lot of money, it is difficult for most investors to make large-scale real estate investment. Real estate trust and investment funds raise public funds in the form of income certificates to engage in large-scale and diversified real estate investment, which makes investors' investment in real estate change into investment in securities, reducing the investment threshold and operation difficulty. Especially for small and medium-sized investors, they can enter the non-residential real estate investment field that is difficult to get involved because of the high capital threshold.

2. It has high liquidity. Real estate trust and investment funds reflect the value of real estate through securitization. After securities are issued, they will generally be listed and traded in the securities market, which greatly improves the liquidity and liquidity of products.

3. Product income and dividends are relatively stable, and there is a certain increase. Real estate trust and investment fund products are mainly rental income, and the main part of general income (more than 90%) is used for dividends, so REIT's income and dividends are relatively stable compared with other financial products. At the same time, real estate trust and investment funds have a certain growth, mainly in two aspects: first, with the development of social economy, the rental income of property has increased, and second, the fair value of property held has increased.

4. The correlation with stocks and bonds is low, and joining the portfolio can effectively spread risks. The income/risk characteristics of real estate trust and investment funds are between stocks and bonds, but the correlation between them is not high. Therefore, many investors regard real estate trust and investment funds as the fourth kind of assets besides stocks, bonds and cash.

5. Resist inflation. On the one hand, the real estate assets held by real estate trust and investment funds will increase with inflation; On the other hand, the main income source of real estate trusts and investment funds-real estate rental income will also increase with the price increase, thus increasing dividends to investors. Therefore, real estate trust and investment funds can be regarded as an investment tool to resist inflation.

6. Strict monitoring and transparent information. Because the supervision and information disclosure standards of real estate trust and investment funds refer to the standards of listed companies, it is a relatively safe product. Compared with real estate development companies, real estate trusts and investment funds are more transparent.

Four. Risks of real estate trust and investment funds

It is true that the real estate trust and investment fund is a very attractive investment product, but it is also necessary to understand some risks that may be encountered in investing in this product, mainly including:

1. Overall economic risk. In the case of global and local economic recession or even recession, the rent level of real estate will generally decline, while the vacancy rate and rent default rate will also rise, which will have an impact on the income of real estate trusts and investment funds.

2. Real estate cyclical risk. Real estate is a cyclical asset, and securities derived from real estate may also fluctuate periodically.

3. Policy risks. When the relevant laws, tax system and accounting system change, it may affect the debt ratio of real estate trust and investment funds and the valuation of real estate assets held. In addition, the adjustment of local construction planning will also directly affect the value of real estate assets held by real estate trust and investment funds.

4. Risk of price fluctuation caused by interest rate changes. The spread between real estate trust and investment funds and bonds will affect investors' willingness to participate in real estate trust and investment funds. However, the short-term performance of real estate trust and investment funds is generally only affected by the short-term performance of the stock market and interest rates. In the long run, the price of real estate trust and investment funds still depends on the quality and profitability of the underlying assets.

5. The manager's credit risk. Investors invest in real estate assets through real estate trusts and investment funds, but they don't directly own real estate assets, so they lack the initiative and management right of the assets, especially when the asset manager mismanages or makes profits for others, investors can't directly intervene to stop it, so they can only end their investment by selling and leaving.