Moderate stability or risk and growth – we help you choose between REITs and real estate securities

Key takeaways:

• Real estate securities are financial instruments whose value or income is linked to specific real estate assets or cash flows.

• REITs are real estate investment trusts that pool capital from many investors into a broader property portfolio.

• The main difference: real estate securities are often linked to specific projects, while REITs usually provide exposure to a diversified property portfolio.

• TWINO offers TWINO Properties preference shares, based on rental properties and issued within a regulated environment supervised by the Bank of Latvia.

Why investors look for real estate income without direct ownership

Real estate investing has historically been one of the oldest forms of capital allocation. For many people, it is associated with stability, regular income, and the expectation that property values may increase over time.

However, buying real estate directly requires significant starting capital. Managing property also takes time, knowledge, and ongoing involvement.

That is why more private investors are looking for ways to earn income from real estate without having to buy and manage physical property themselves. Real estate investment trusts (REITs) are often mentioned in this context, but another instrument also exists: real estate securities.

Although both solutions allow investors to gain exposure to real estate indirectly, they work differently and suit different investor needs.

What are real estate securities?

In simple terms, real estate securities are financial instruments whose value or income is linked to real estate assets or the cash flows they generate.

In practice, this means that the investor does not buy the property itself. Instead, the investor buys a security based on a specific real estate project, loan, or income stream. Income from such instruments may come from interest payments, rental income, or project profits.

Several types of instruments can fall under real estate securities:

• Real estate bonds — companies or developers issue bonds to finance specific projects.

• Mortgage-backed securities — instruments based on a portfolio of mortgage loans.

• Real estate-backed asset-backed securities — securities backed by specific properties or related cash flows.

• Preference shares and equity securities — investors buy shares in a company that holds specific real estate assets.

• Shares of real estate companies — companies whose main activity is property development, management, or rental.

How do real estate-backed securities work?

Real estate-backed securities are instruments where the security is backed by real estate, a development project, a mortgage portfolio, or loans related to real estate.

For example, a developer may raise financing for a residential project by issuing securities purchased by investors. Investors then receive income from the cash flow generated by the project.

This approach allows investors to invest in real estate with a relatively small amount and without directly purchasing a physical property.

At the same time, the risks of such investments are linked to the quality of the specific project, market conditions, and the issuer’s ability to meet its obligations.

TWINO Properties preference shares

On the TWINO platform, investors can access equity securities — registered preference shares — issued by AS TWINO Properties to raise financing for investments in short-term rental properties.

Investors do not directly own the real estate itself. Instead, they purchase securities linked to a specific property.

Returns may come from rental income in the form of dividends and potential property value appreciation. Dividends are paid only if the property has generated profit during the relevant year. This is an important point for investors to understand, as dividends are not guaranteed.

The product operates within the regulated environment of the TWINO platform, which provides an additional layer of protection compared with unregulated alternative investment models.

What is a REIT?

A REIT — short for Real Estate Investment Trust — is a company or fund that owns, manages, or finances real estate.

The core idea is simple: a REIT pools capital from many investors and invests it in different properties, such as office buildings, logistics centers, shopping centers, hotels, or residential projects.

The investor buys shares or units in the fund and receives income from the fund’s profit, often distributed as dividends.

Many REITs are listed on stock exchanges, which means they can be bought and sold similarly to stocks. At the same time, REIT prices are influenced not only by the real estate market, but also by broader financial market conditions, interest rates, and investor sentiment. This can lead to significant short-term price fluctuations.

In Latvia, REITs are not offered on local platforms. Investors who want to invest in REITs usually do so through international brokers, which are not subject to Bank of Latvia supervision or Latvian investor protection rules.

Key differences between real estate securities and REITs

Although both instruments are alternative ways to invest in real estate, there are several important differences in how they work.

Investment structure

Real estate securities are usually based on specific projects, loans, or assets. A REIT, on the other hand, is a fund or company that manages a portfolio of properties.

Type of income

With securities, income may come from interest, project profits, or a specific cash flow. With REITs, income is usually paid as dividends related to the fund’s performance and property value growth.

Diversification

Real estate securities are often focused on a specific project or asset, which creates a direct link to a particular property. REITs usually offer broader exposure to a property portfolio, helping spread individual project risks.

Liquidity

The liquidity of real estate securities may be limited depending on the instrument and the platform. Exchange-traded REITs are generally easier to sell, although their price may fluctuate due to market conditions.

Minimum investment

Real estate securities can often be accessed with a relatively low starting amount. The minimum investment in a REIT depends on the fund or share price and may sometimes be higher.

Regulation

Both instruments can be regulated, but the level of regulation and investor protection depends on the platform and jurisdiction. Platforms licensed by the Bank of Latvia, including TWINO, are subject to stricter requirements regarding client asset segregation, transparency, and investor protection.

Investor involvement

With real estate securities, investors need to assess the risk of a specific project, which allows them to make more informed decisions about individual investments. With REITs, management is handled by the fund on behalf of the investor, making it a more passive option.

Expected average return

Returns on real estate securities depend on the project and may sometimes be higher, but with greater potential volatility. REITs usually offer more moderate and stable long-term returns based on dividends and property value growth. In both cases, returns are not guaranteed.

What this means for the individual investor

Choosing between real estate securities and REITs largely depends on the investor’s goals, risk tolerance, and desired level of involvement. Both instruments can be a valuable part of an investment portfolio, but each offers a different approach.

When a REIT may be more suitable

A REIT may be an interesting choice for investors who want a more passive solution with broad diversification across many properties. It may suit those planning a long-term investment in international real estate markets and who are prepared to accept stock market fluctuations.

When real estate securities may be more suitable

Real estate securities may be suitable for investors who want to invest in specific projects with a direct link to a particular property or cash flow. They may appeal to investors seeking potentially higher returns — which are not guaranteed — and who value the use of platforms operating in a regulated environment supervised by the Bank of Latvia, providing additional investor protection.

TWINO Properties as a practical example

TWINO Properties preference shares offer a direct link to specific rental properties, returns in the form of dividends if the property has generated profit during the relevant year, and a regulated environment supervised by the Bank of Latvia.

This is an example of how real estate securities can work in practice in a regional market.

What risks should investors consider?

Although real estate investments are generally considered relatively stable, there are still several risks to consider. Investors may lose part or all of the capital invested.

Key risks in real estate investing include:

• Real estate market downturn — property values may decrease.

• Interest rate changes — these may affect both property values and investor sentiment.

• Project delays or failure — especially relevant for project-specific investments.

• Issuer solvency issues — these may affect income payments.

• Lower liquidity — especially outside exchange-traded instruments.

• Financial market volatility — particularly relevant for exchange-traded instruments.

Before investing, it is important to understand how the specific instrument works, where the income comes from, and which factors may affect returns. Returns are not guaranteed.

Conclusion

Both real estate securities and real estate investment trusts allow investors to participate in the real estate market without having to buy and manage property directly.

However, there are important differences between these instruments. REITs generally offer broader property portfolio exposure and exchange liquidity, along with related market volatility. Real estate securities often allow investors to invest in specific projects with a direct link to a particular property, creating a different risk and return profile.

When choosing between these options, investors should assess not only potential returns, but also risks, investment term, and their own experience. The better investors understand how these instruments work, the more informed their long-term decisions can be.

If you would like to learn more about the TWINO Properties offering and real estate securities on the TWINO platform, contact us or explore the FAQ and Resources sections on our website.

Email: [email protected]
Address: Dzirnavu iela 42, Riga, LV-1010, Latvia

This material is for informational purposes and is not individual investment advice.