In last week’s article, we talked about using REITs for long-term investing and short-term trading for regular dividends.
Today we shall dive deeper into the specific strategies which REIT investors and traders can consider using to improve their return on investment.
REIT INVESTMENT STRATEGIES FOR LONG TERM INVESTORS
Long-term investors prefer to buy and hold REITs for a number of years to potentially profit from dividend distribution and capital gain. Therefore, it is crucial to pick REITs with strong fundamentals (eg. consistent uptrend quarterly dividend payment, supported by steady cash flow generated from REITs portfolio).
Investors must also understand that unlike the property market which is more defensive in nature, REIT has the speculative element of the stock market. During bear markets, REIT prices can drop as much as 70% or more. Investors must be prepared to hold their positions during such periods, so that any paper loss do not materialize.
REIT INVESTMENT STRATEGIES FOR SHORT TERM TRADERS
Unlike long-term investors, short-term traders aim to profit from capital gains within a few weeks or months. This is usually done using a Buy Low Sell High or Buy High Sell Higher strategy (for bullish market) with the help of technical analysis tools (eg. Moving Averages, Bar Charts, Candlesticks).
As the time horizon is relatively short, the timing of entry is important. To increase the chances of making profit, traders can consider following the guidelines below:
- Buy REIT when the price falls below its launch price to get higher coupon yield
- Wait for a bull market when most stock prices go up, or bear market when everyone favors defensive stocks
- Monitor the price. When the sum of the Coupons Received + REIT Price Appreciation reaches their profit target (eg. 20% gain or more) execute a sell order to lock-in the profit.
As with most investments, returns are not guaranteed and there is a possibility of making a loss.
If you are unsure if REITs is suitable for your risk tolerance, you should should consult a Financial Advisor before you invest. Contact your trusted FLA Organization financial advisor for more information today!
