What sort of income can you generate with a REIT?

AP3

Hello All,

I have some savings that aren't doing much for me in an ISA, and I'd thought about buying a property and renting it out, but obviously that comes with some risk.

Then I read about REITs which seem like a hand-off way of getting a monthly income (which is what I'm after).

I can't find any examples of how much people are earning monthly based on the amount they have invested. Would any one have an idea of how much you could expect in monthly income from a £200k investment? Obviously it would depend on the fund, but a very ballpark figure would be much appreciated.

Cheers,
Andy

george4064

1. Go to a website which lists investment trusts/ETFs, e.g. https://www.hl.co.uk/shares/investment-trusts
2. Filter for REITs
3. Find out what their yields are
4. Multiply your investment in REITs by the yields, that is your estimated annual dividend income*

*dividend levels vary and are not guaranteed, capital is at risk and you may get back less than you invest.

Before you invest, make sure you thoroughly read through what the REIT is actually invested in as they can vary hugely. Some are quite diversified whilst others are very concentrated in specific sectors such as supermarkets or warehouses.

On a wider note, if you are investing for income you should look to various sources of income rather than piling into a REIT/a handful of REITs. Even if you hold diversified REITs, you’re still making a conscious decision to exclude a huge part of the investable world (equities, infrastructure, bonds to name a few…)

xylophone

List of REITS here.

https://www.lseg.com/markets-products-and-services/our-markets/london-stock-exchange/real-estate-hub/reits-london-stock-exchange

REITS are companies and you buy shares in the company.

Re taxation

https://www.lseg.com/markets-products-and-services/our-markets/london-stock-exchange/real-estate-hub/reits-london-stock-exchange

With regard to monthly income,  I had an investment in one in the past which paid six monthly - I currently have shares in Target Healthcare which pays quarterly.

You can check out each company for yield and dividend frequency.

dunstonh

Then I read about REITs which seem like a hand-off way of getting a monthly income (which is what I'm after).

Not really.   A typical diverse portfolio will have less than 10% allocated to property shares.

I can't find any examples of how much people are earning monthly based on the amount they have invested.

Probably as they are not (at least most normal consumers are not).  It would be too high risk and too volatile for the vast majority of UK consumers.

AP3

george4064 said:

1. Go to a website which lists investment trusts/ETFs, e.g. https://www.hl.co.uk/shares/investment-trusts
2. Filter for REITs
3. Find out what their yields are
4. Multiply your investment in REITs by the yields, that is your estimated annual dividend income*

*dividend levels vary and are not guaranteed, capital is at risk and you may get back less than you invest.

Before you invest, make sure you thoroughly ready through what the REIT is actually invested in as they can vary hugely. Some are quite diversified whilst others are very concentrated in specific sectors such as supermarkets or warehouses.

On a wider note, if you are investing for income you should look to various sources of income rather than piling into a REIT/a handful of REITs. Even if you hold diversified REITs, you’re still making a conscious decision to exclude a huge part of the investable world (equities, infrastructure, bonds to name a few…)

Thanks George. The yields don't look very inviting!

Are there better ways of generating a monthly income? That's really what I'm after, along with trying to keep my capital safe.

Cheers,
Andy

Linton

AP3 said:

george4064 said:

1. Go to a website which lists investment trusts/ETFs, e.g. https://www.hl.co.uk/shares/investment-trusts
2. Filter for REITs
3. Find out what their yields are
4. Multiply your investment in REITs by the yields, that is your estimated annual dividend income*

*dividend levels vary and are not guaranteed, capital is at risk and you may get back less than you invest.

Before you invest, make sure you thoroughly ready through what the REIT is actually invested in as they can vary hugely. Some are quite diversified whilst others are very concentrated in specific sectors such as supermarkets or warehouses.

On a wider note, if you are investing for income you should look to various sources of income rather than piling into a REIT/a handful of REITs. Even if you hold diversified REITs, you’re still making a conscious decision to exclude a huge part of the investable world (equities, infrastructure, bonds to name a few…)

Thanks George. The yields don't look very inviting!

Are there better ways of generating a monthly income? That's really what I'm after, along with trying to keep my capital safe.

Cheers,
Andy

You can buy a range of income generating funds (similar to REITs but they invest in many other things than property).  Some may have 1 distribution a month but more often it's 1, 2 or 4 times a year.  So you need to manage your money so you have enough in your account to cover the months when there is less income than average.

A second option is to buy funds that grow in value and then sell some off whenever you want the money.  Every month would be rather a hassle.  Some people may just sell off a year's amount of expenditure each year and keep it in a current or savings account.

A third way is to buy an annuity whereby you are paid a guaranteed fixed amount each month until you die.  You lose access to the original lump sum.  Sadly annuities are expensive and you  may not get as much income as you may have hoped for.  But if you want the guarantee they are really the only way of providing it.

It is often sensible to split your options - I use all 3 methods.

tebbins

Try thinking in terms of taking income from the total return (capital growth + income) rather than just chasing a high income yield, which is great if the business can keep up the payments without reducing the business's value, such as with tobacco companies historically, but also potentially very risky and an indicator of an unsustainable business.
Unusually, yields on equities have been higher than yields on bonds since around 2011 (FTSE 100 vs ~15 year gilts, S&P500 vs US 10 year treasuries). From the 1950s until then, bond yields were higher than equity dividend yields. So if it's income you're after, unless you're willing to take the risks of high yield bonds, infrastructure, real estate etc (all with debatable pros and cons), you have to look at equities.

jimjames

tebbins said:

Unusually, yields on equities have been higher than yields on bonds since around 2011 (FTSE 100 vs ~15 year gilts, S&P500 vs US 10 year treasuries). From the 1950s until then, bond yields were higher than equity dividend yields. 

In the same way dividend yields have been higher than cash savings which was unheard of previously. When I started investing you had to accept that the yield you got was lower than cash but would balance out long term as it should increase over inflation. Now you get the yield and the growth.

Thrugelmir

jimjames said:

tebbins said:

Unusually, yields on equities have been higher than yields on bonds since around 2011 (FTSE 100 vs ~15 year gilts, S&P500 vs US 10 year treasuries). From the 1950s until then, bond yields were higher than equity dividend yields. 

Now you get the yield and the growth.

The growth to underpin share prices in many instances has yet to be delivered. Rising assets fueled by a flood of cheap cash looking for a home isn't sustainable growth in isolation. If nobody wants to buy the shares you own at current prices levels then the growth you've enjoyed could simply evapourate. 

Andy7856

To answer your question, and applied to your example portfolio if you had placed your full value into my REIT (Supermarket Income REIT) you would have over the last 6 month received dividends of £2601 in Aug, and £2607 planned in Nov. (they pay every 3 months but only I held the shares for 6 months).  Of course you would wish to use other funds, but this is a pure example to answer your question.  Plus the value of the shares would have grown by 2.6% in those 6 months.  Don't  forget placing into a ISA would in theory boast their worth as you could escape income tax which perhaps you may pay on a BTL or annuity.

There is a handy income  tool here https://www.theaic.co.uk/, were you can build portfolios, and even see when the income pays out.  As pointed above a regular smooth income every month is near in impossible. 

Its a separate debate on fees, platform costs, share value predictions etc etc of course.

I dont think there is right or wrong answer.

NedS

AP3 said:

Hello All,

I have some savings that aren't doing much for me in an ISA, and I'd thought about buying a property and renting it out, but obviously that comes with some risk.

Then I read about REITs which seem like a hand-off way of getting a monthly income (which is what I'm after).

I can't find any examples of how much people are earning monthly based on the amount they have invested. Would any one have an idea of how much you could expect in monthly income from a £200k investment? Obviously it would depend on the fund, but a very ballpark figure would be much appreciated.

Cheers,
Andy

With £200k, I would look to build a diversified portfolio of income producing assets, at which point I think 5% is readily achievable.

In addition to REITs (I hold CSH and THRL), I would also consider renewables (solar, wind, battery storage etc) which are all paying strong dividends, conventional equity (plenty of quality dividend stocks in FTSE100, plus Investment Trusts such as CTY which give instant diversification), and corporate bonds/debt. Building a diversified portfolio will help reduce volatility and risk whilst giving diversified stream of income. My income portfolio currently has a yield of 6.25%, so an income of around £12,500 for your £200k

Trustnet is useful for screening suitable REITs and other trusts:

https://www.trustnet.com/fund/price-performance/t/investment-trusts?sector=&tab=fundOverview&pageSize=25&IsTrustnetITSpecialistVct=false