Are you looking to expand your investment portfolio? If you are, it may have already occurred to you to invest in real estate. Real estate is a reliable long-term asset when handled properly, although direct real estate management requires a lot of time and a large initial investment. That’s where UK real estate investment trusts (REITs) come in.
Real estate investment trusts present an easier way for the average individual to invest money in real estate. They offer you a way to potentially profit from real estate without worrying about owning a property, getting a mortgage or paying property tax.
In this guide we’ll go over all the basics you should know if you’re considering REITs, including the best UK real estate investment trusts for 2020 and the top online trading platforms.
What are Real Estate Investment Trusts?
REITs are companies that produce an income with real estate. They may do this by owning or operating income-producing real estate, income-producing real estate, or financing real estate purchases for a profit. In order to qualify as an REIT, a company must distribute 90% of its taxable income to shareholders each year,
Investing in REITs is simple and quite popular. They were modelled on mutual funds, where you would invest your money into a larger pool of money which is managed by financial professionals. The difference is that mutual funds are pooled investments in securities, like stocks and bonds. REITs are similar, but the money you invest in them is only used for real estate investments.
REITs are a great way for amateur investors to invest in real estate. They often don’t produce significant capital appreciation, but REITs typically provide substantial dividends when compared to other investment options.
An REIT can invest in any kind of income-producing real estate. Options often include but aren’t limited residential houses and apartment, hotels, offices, retail units, warehouses and cell phone towers
The result that an REIT produces will be similar regardless of what kind of real estate it’s invested in. The REIT owns or leases space which is used by individuals or businesses for a cost. The money that is collected by the REIT is then distributed to the REIT’s investors (shareholders) as a dividend.
Types of UK real estate investment trusts
While real estate investment trusts have simple and straightforward business models, there are several different types. The form of income that each REIT produces will depend on its type.
These are the most common type of REITs. Equity REITs purchase real estate and then sell it at a higher cost than they bought it for. The process requires these REITs to:
- Purchase real estate.
- Build and/or renovate real estate.
- Sell real estate at a profit or collect rent.
When an equity REIT sells real estate, most of the profits are dispersed to its investors. These REITs are often the most stable, as their income usually relies on rent payments. As long as the rent payments are consistent, the REIT will remain profitable. For the same reason, forecasting future income is easier for them.
While equity REITs are usually the most stable REITs, they aren’t risk-free. Recessions or any period of economic decline or uncertainty may affect the property market, so equity REITs won’t stay at the same level of profitability indefinitely and their profitability is cyclical.
Also, gaps in supply and demand can affect their profitability. For example, if there are too many offices available for customers to rent them all out, the income of the offices will drop and the REIT will make less money.
Unlike REITs that own real estate and collect rents, mortgage REITs don’t own any real estate. Instead, these REITs just finance real estate. They are often abbreviated as mREITs.
Mortgage REITs don’t directly invest in property. They invest in mortgages, mortgage-backed securities, and other assets related to mortgages. They simply provide the funds that a developer needs to purchase and develop real estate with. The money a mortgage REIT makes comes from interest on top of the loan repayments their borrowers make.
As is the case with all REITs, the profits primarily go to the investors as dividends. The only difference is the way the profits are earned. Mortgage REITs tend to do better when interest rates on mortgages are higher.
The risks of mortgage REITs differ slightly to those of equity REITs. The main risk for a mortgage REIT is a sudden drop in mortgage interest rates. If rates drop, a mortgage REIT will experience a drop in its income. Drops in interest rates can also lead to any people even refinance their mortgages, causing the REITs to reinvest at a lower rate.
Some REITs collect both interest on mortgages and rent. However, they typically still focus more on one form of real estate income.
The goal of these hybrid REITs is to benefit from the profitability of both types of REITs. They also spread their risk, which can be a great benefit at certain times. For example, if mortgage interest rates drop, a hybrid REIT will be less affected than a mortgage REIT while still being able to make money from any equity it holds.
How to invest in UK real estate investment trusts
You can invest in publicly traded REITs on major stock exchanges. To do so, you need to buy stocks in the REIT through a broker the same way you would purchase other shares. You can also invest in REIT exchange-traded funds (ETF), which allow you to invest in a pool of REITs and real estate companies. There are many UK online stockbrokers that offer REITs, so it’s just a matter of finding the right platform for you.
It’s also possible to invest in non-traded REITs, though you need to find a broker that participates in the REIT’s offering.
Most Popular UK Real Estate Investment Trusts
There are a lot of REITs in the UK, so there’s plenty of choice when it comes to investing. To help you out, here are the five best real estate investment trusts in the UK by market capitalisation.
SEGRO plc (SGRO)
SEGRO is the largest REIT in the UK by far. The company is currently capped at £8,825 and is producing a dividend of 3.26%.
As an industrial REIT, SEGRO owns, develops, and manages warehouses and industrial properties in the UK and other European countries. They credit much of their success to their focus on urban warehouses that are at the centre of large population centres and near some of the busiest business districts in Europe.
Land Securities Group plc (LAND)
Often abbreviated as Landsec, the Westminster-based REIT invests in retail and commercial properties. They own over 24 million square feet of workplace, leisure, and residential properties in the UK. They focus on properties in London but are very active elsewhere as well.
British Land Company plc (BLND)
The British Land Company also focusses on British commercial and retail property management. Their real estate is located all around the UK and their portfolio is focussed on high-quality standalone buildings.
Derwent London plc (DLN)
Derwent London doesn’t have as much real estate as many of the REITs on this list. But that’s because they focus on just the most valuable real estate in London. They currently own 82 buildings in London worth about 5.5 billion when you include joint ventures. These buildings are all high-value commercial properties.
The Unite Group plc (UTG)
The Unite Group’s portfolio consists entirely of student accommodations. They manage 175 properties which collectively house about 75,000 students at any given time. Their properties all feature rents which cover all bills, 24-hour security, and high-speed Wi-Fi.
Where to Invest in UK Real Estate Investment Trusts
If you fancy investing in the best UK real investment trusts, there are a range online stockbrokers to choose from. To help you out, we’ve reviewed many investment platforms and picked out the following top three.
1. eToro - Invest in REITs Commission-Free
eToro is a social trading brokerage where you can invest in REITs such as British Land and NewRiver REIT PLC. You can also invest in ETFs that expose you to a number of UK real estate companies and REITs, such as the iShares UK Property UCITS ETF.
You can choose to either buy the underlying asset or trade CFDs when you invest in REITs on eToro. This broker is one of the most affordable around, with no commission trading and competitive spreads. You can get started by depositing $200, and there's a flat $5 fee on all withdrawals.
eToro made its name as a social trading platform that offers innovative tools like CopyTrader. This allows you to mirror the portfolios of other traders, meaning you can search for top-performing REIT investors and copy their traders.
Regulated by the UK Financial Conduct Authority as well as by regulatory bodies in Cyprus and Australia, eToro is one of the most secure trading platforms around. There's a range of payment methods available, including PayPal, and you can trial the platform courtesy of a $100,000 demo account.
Assets: Cryptocurrencies, Stocks, CFD, Forex, ETFs, Commodities
Demo Account: Yes
Educational Material: Great educational material for both beginners and advanced traders
Fees: $5 Withdrawal Fee, $5 Inactivity Fee, No Account Fee, No Deposit Fee
Minimum deposit: $200 (£160)
Special Features: Copy trading and social trading site
Regulation: CySEC, FCA, ASIC
Payment methods: Credit/debit card, Paypal, Sofort, Rapid transfer, Skrill, Wire transfer, Neteller, WebMoney, UnionPay
- Commission-free REIT trading
- Buy underlying assets of trade REIT CFDs
- Social Trading Tools
- Limited technical analysis tools
- Not well-suited for the more advanced investor
2. Plus500 - Low Cost UK Investment Platform
Plus500 is a British broker that is also regulated by the FCA and allows you to invest in a number of REITs and REIT ETFs. Whereas eToro allows users to both buy assets and trade CFDs, Plus500 is CFDs-only.
This trading platform has gained a reputation for being among the most competitive on the market in terms of fees, with no commission and very tight spreads. You can also trade shares CFDs with leverage of up to 1:5.
To get started with Plus500, all you need is $100 to meet the minimum deposit requirement. There's also a convenient mobile app that you can use on the go as well, as well as 24/7 online support should you ever need assistance.
Demo Account: Yes
Educational Material: No
Fees: £10 Inactivity Fee, 0 withdrawal fees
Minimum deposit: £100
Special Features: 2,000 trading instruments
Regulation: CySEC, FCA, ASIC, MAS
Payment methods: Credit/debit card, Paypal, Bank transfer
- Minimum deposit of £100
- Over 2,000 trading instruments
- Mobile app available
- No education material
- Not suitable for beginners
3. IG - Over 12,000 Shares to Invest In
IG offers a huge selection of over 12,000 shares, including some of the best real estate investment trusts in the UK. This platform allows you to trade shares as both CFDs and spread bets.
When trading shares CFDs at IG, you may a commission rather than a spread. For the UK market, this is 0.10% when you open and close your position.
There's a wealth of information and educational material available at IG, so it's a good both for both beginner and more experienced traders. It also offers algorithmic trading through the ProRealTime and MetaTrader4 (MT4) platforms.
The IG app is a great option if you want to invest in REITs on your mobile. You can get started with a £250 minimum deposit, which you can make via PayPal. IG is an FCA-regulated platform, so you can be certain it's safe and secure.
Assets: Cryptocurrencies, Stocks, CFD, Forex, ETFs, Commodities
Demo Account: Yes
Educational Material: Wealth of educational resources and insights
Fees: Commission, overnight funding, inactivity fee
Minimum deposit: £250
Special Features: Algo trading, advanced trading tools
Payment methods: Credit/debit card, Paypal, Bank transfer
- Advanced trading tools
- Over 12,000 shares
- MT4 and ProRealTime supported
- High fees
4. Markets.com - Fundamental and Technical Analysis Tools
If you're looking for a platform that provides a wealth of educational material and analysis tools, Markets.com is a great choice. This platform offers over 2,000 financial instruments, including several REITs which you can trade as CFDs.
With sentimental, technical and fundamental tools available, Markets.com is perfect for traders looking to build their knowledge and develop their strategy. There's even the XRay feature, a live video service in which financial experts discuss the markets.
Fees are competitive at Markets.com, the customer support is helpful and both MT4 and MT5 are supported. Markets.com is licenced by the CySEC, but isn’t registered with the FCA, though it's still available to UK users.
Assets: Forex, stocks and shares, CFDs, commodities, indices
Demo Account: Yes
Educational Material: Live webinars and regular analysis
Fees: 1.9 pips on most major pairs, no deposit fee, £10 monthly inactivity fee
Minimum deposit: £200
Special Features: Heaps of technical indicator tools
Regulation: FCA, ASIC Payment methods: Credit/debit card, Paypal, Skrill, Neteller, Bank wire
- Variety of advanced trading tools
- Competitive fees
- User-friendly trading interface
- Spreads on minors/exotics are expensive
- Only 57 currency pairs
- £10 monthly inactivity fee
Should I Invest in Real Estate Investment Trusts? Points to Consider
REITs are potentially a great investment option for individuals from all walks of life. They are one of the most common investment choices for a reason. However, as with any investment, that doesn’t mean they’re risk-free.
Benefits of real estate investment trusts
REITs are a good long-term investment as they typically produce dividends that add up to significant amounts over the long term. This gives them the potential to grow enormously as an investment.
Well-located real estate is widely considered one of the best investments in terms of reliability. If you choose to invest in the best real estate investment trusts for 2020, you have a safe investment as well as large dividends. REITs distribute 90% of their taxable income to shareholders, which ensures investors a fruitful investment as long as the REIT remains profitable.
Potential drawbacks of real estate investment trusts
The main drawbacks of REITs are the risks associated with them. If you invest in an equity REIT, changes in the property market can affect the profitability of real estate. This will increase or reduce the value of your REIT investments.
If you invest in a mortgage REIT, interest rate changes can affect your investment’s value. This also isn’t necessarily negative, but external factors beyond your control will often have an effect on your investments.
How to Buy Real Estate Investment Trust Shares in the UK
It’s quick and easy to invest in the best real estate investment trusts for 2020 with our recommended UK stock brokers, eToro. Simply follow the steps below to get up and running.
Step 1: Create an Account
Signing up is easy and just takes a few minutes. You just need to state your full name, email address, and a username to get started. You’ll then need to verify your account by uploading an image of your photo ID and a recent bill or letter with your address on it.
Step 2: Deposit
Once you’ve signed up you’ll need to fund your account before you can invest. Simply click on the ‘Deposit’ option on the bottom left corner of the page, choose your preferred payment method and complete the transaction.
Step 3: Search REITS
You can search available REITs in the search bar at the top of the page. Click ‘Trade’ once you’ve found the REIT you wish to invest in.
Step 4: Open Trade
Choose whether you want to buy the underlying asset or trade a CFD, then set the amount you wish to invest and the other parameters. Once you’re happy, simply click ‘Open Trade’ and your investment will be processed.
REITs are a popular and accessible investment option. Investing in them is easy and you can do so quickly, even from your phone or computer. Like all investments, REITs present several risks. But if you choose the right REIT, the dividends you get will make them a worthwhile long-term investment option.
Now we’ve taken you through the best real estate investment trusts and the top platforms, you’re ready to invest for yourself. If you’re looking for an unrivalled investing experience, we recommend going with eToro, our number one UK investment platform.
eToro: Invest in REITs Commission-Free
- Buy REIT shares or trade CFDs
- Leading social trading platform
- Commission-free share trading
- PayPal accepted
Are REITs good investments?
REITs are generally considered relatively reliable investment for the long term. They produce strong dividends and some types of REITs can potentially produce reliable income. However, it's important to remember that all types of investing carries risk, so you should be aware of the possible pitfalls before putting your money on the line.
How do you buy REIT shares?
REIT shares can be bought directly through brokers. You simply need to sign up to an online stockbroker like eToro, deposit funds and then you'll be able to invest in the best real estate investment trusts at the click of a button.
Which type of REIT is best?
Equity REITs and are a strong option if you're looking for a good long-term investment producing worthwhile dividends, but we recommend comparing the different types of REITs before you put your money on the line.
How much money do I need to invest in REITs?
This depends on the minimum deposit of your chosen investment platform. eToro has a $200 minimum deposit, for example, so you'll need at least this much to get started.