Real estate unit trusts allow individuals to pool their resources to invest in a diversified portfolio of real estate assets — residential, commercial, and industrial — without the need to directly own or manage properties.
Investing in real estate has long been a popular way to build wealth, but the high costs and responsibilities of owning property can be a barrier for many Jamaicans. Enter: real estate unit trusts (REUTs), also known globally as real estate investment trusts (REITs). These investment vehicles allow individuals to pool their resources to invest in a diversified portfolio of real estate assets — residential, commercial, and industrial — without the need to directly own or manage properties. By purchasing units in a REUT, investors can earn returns such as rental income, based on the performance of the underlying properties. This approach offers a more accessible and hassle-free entry into the real estate market, making it an attractive option for those looking to diversify their investment portfolios.
“For persons who may not have that amount of capital, those amounts of funds to, say, let me go and buy a property, you can get exposure or get the benefit from real estate returns,” said Camille steer, Corporate Manager of Fund Services at JMMB, in an interview with the Jamaica Observer. “It helps to have more stable returns in your overall portfolio. And that is what you want.”
In discussing the benefits of REUTs, Steer had a clever way of breaking down the benefits of REUTs for her clients. She uses the acronym REAP to drive home the advantages of investing in REUTs.
“The R in ‘REAP’ stands for reaping the rewards of unit trust,” Steer explained. “By investing in REUTs, you’re not directly exposed to the real estate market. Instead, you’re getting indirect exposure, which reduces volatility through diversification.”
Diversification is a cornerstone of sound investment strategy, allowing investors to spread risk across various asset classes. While stocks offer growth potential, they come with higher volatility. Bonds provide fixed income but may deliver limited returns. Real estate, on the other hand, can enhance diversification and potentially improve overall portfolio performance. However, direct real estate investments can be capital-intensive and illiquid. In contrast, REUTs offer indirect exposure to the real estate market with greater liquidity, allowing individuals to buy or sell units more readily.
The “E” in REAP, Steer explains, stands for expert management — a crucial benefit of investing in REUTs. With professional fund managers at the helm, investors can rest assured that their assets are in good hands.
“The mandate is to ensure that your returns are optimised,” Steer told Sunday Finance. “There are strategic decisions that are taken in terms of the positioning of the portfolio. There is an allocation across multiple sectors, geographic locations and property types.”
By investing in REUTs, individuals can sidestep the hassle and responsibility of directly managing properties, including maintenance and attendant costs. Instead, experienced managers handle the acquisition, management, and sale of properties, ensuring optimal performance and compliance with regulations. But what really sets REUTs apart is their accessibility. With several financial institutions offering REUTs, both local and international investors can gain exposure to the Jamaican property market. Research shows that JMMB’s Optimum Capital (Real Estate) Fund has one of the lowest capital entry points on the market, starting at just $25,000, with the added advantage of tax-free benefits.
“The entry point is by virtue of also looking on the landscape and wanting to offer it to as many investors as possible. At the end of the day, when you’re looking on unit trusts, you have different product offerings, different solutions and sometimes that level of accessibility is not there,” Steer revealed.
JMMB’s research has revealed a growing demand for real estate investment opportunities, driven by clients seeking to diversify their portfolios. However, accessing the real estate market can come with a hefty price tag. A review of the market reveals that several other financial institutions offer real estate unit trusts, but with significantly higher entry points. For instance, Barita’s Real Estate Unit Trust requires a minimum investment of $1.7 million, while Proven Wealth’s Unit Trust Funds start at $500,000, and the VM Wealth Classic Property Fund, which is more accessible, has a minimum investment requirement of $50,000.
Unit trusts are structured to provide daily unit pricing. This means that the value of each unit reflects the performance of the underlying assets, including rental income or earnings from investments within the portfolio. Investors can observe these changes in value over time, showcasing the portfolio’s overall performance, especially over medium- to long-term periods. Therefore, this type of investment is ideal for individuals with a medium- to long-term investment horizon. When considering portfolio fit (the “P” in reaping the rewards of unit trusts), it’s essential to match the unit trust offering to your financial goals. Whether your objectives are short-term, medium-term, or long-term, there is a diverse suite of unit trust options available.
“By virtue of your risk profile, by virtue of risk appetite, you can have a best fit in your portfolio because ultimately what you’re trying to do is ensure that you can get exposure to a wider array of assets. And that is what unit trust allows or facilitates,” said Steer.
Before diving into real estate unit trusts, savvy investors should take a step back and assess three critical factors: risk tolerance, investment timeline, and the trust’s performance history. By carefully evaluating these considerations, investors can ensure that their real estate investment aligns with their financial goals and risk appetite, setting them up for success in the medium to long term.
Senior Corporate Manager of Fund Services at JMMB Fund Manager Camille Steer
JMMB’s Optimum Capital Real Estate Trust offers a low-cost entry point into real estate investing, with a minimum investment requirement of just $25,000.