<#-- Rebranding: Header Logo--> <#-- Rebranding: Footer Logo-->
  1. 25 Investments: Introduction
  2. 25 Investments: American Depository Receipt (ADR)
  3. 25 Investments: Annuity
  4. 25 Investments: Art and Collectibles
  5. 25 Investments: Bonds
  6. 25 Investments: Cash
  7. 25 Investments: Closed-End Investment Fund
  8. 25 Investments: Common Stock
  9. 25 Investments: Convertible Bonds
  10. 25 Investments: Corporate Bond
  11. 25 Investments: Futures Contract
  12. 25 Investments: Life Insurance
  13. 25 Investments: The Money Market
  14. 25 Investments: Mortgage-Backed Securities
  15. 25 Investments: Municipal Bonds
  16. 25 Investments: Mutual Funds
  17. 25 Investments: Options (Stocks)
  18. 25 Investments: Exchange-Traded Funds
  19. 25 Investments: Preferred Stock
  20. 25 Investments: Private Equity
  21. 25 Investments: Real Estate & Property
  22. 25 Investments: Real Estate Investment Trusts (REITs)
  23. 25 Investments: U.S. Treasury Securities
  24. 25 Investments: Unit Investment Trusts (UITs)
  25. 25 Investments: Venture Capital
  26. 25 Investments: Zero-Coupon Securities
  27. 25 Investments: Conclusion

What if you want to invest in the real estate sector, but you either already have a house or don't have enough money to buy one right now? The answer is REITs. REITs sell like stocks on the major exchanges and invest in real estate directly through properties or mortgages. A major advantage to REITs is that they receive special tax considerations. Furthermore, they typically offer investors high yields as well as a highly liquid method of investing in real estate.

There is a wide variety of REITs, but you can break it down into three main categories:

Equity REITs - Equity REITs invest in and own properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties' rents.

Mortgage REITs - Mortgage REITs deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or invest in (purchase) existing mortgages or mortgage-backed securities. Their revenues are generated primarily by the interest they earn on the mortgage loans.

Hybrid REITs - Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages

There are over 300 publicly-traded REITs operating in the United States whose average daily trading volume has more than quadrupled during the last three years, reaching over $280 million dollars. The average dividend yield of an REIT is 9-12%.

 

Objectives and Risks

REITs can be used to meet a wide range of objectives within the real estate sector. They allow you to focus on different sectors of real estate, such as residential versus commercial. They allow you to target different geographical areas. And REITs have often been thought to closely follow the performance of small- to medium-cap stocks.

Still, no matter what the market does, the performance of a REIT is determined by the value of its real estate assets. This is one major advantage to a REIT - its performance is not correlated to other financial assets such as stocks and bonds. As a result, REITs are usually less volatile and provide some degree of inflation protection.

 

How To Buy or Sell It

As we mentioned earlier, REITs sell like stocks on the major exchanges. Therefore, they can usually be bought through a brokerage, either full service or discount. Commissions to buy REITs are usually the same as common stock fees. There is no minimum investment for most REITs, although you may need to buy the shares in even blocks of 10 or 100. Also, many brokerages require clients to have at least $500 to open an account and trade stocks or REITs.

 

Strengths

 
  • Dividends are higher than those of common stocks.
  • The performance of an REIT follows the real estate market more closely than it follows the stock market.

Weaknesses

 
  • Dividends are taxed at the same rate as income, so the higher dividends mean you will likely pay more taxes.
  • Mortgage REITs tend to do poorly as interest rates rise.

Three Main Uses

 
  • Provides Income
  • Capital Appreciation
  • Diversification

 

 

 

 


25 Investments: U.S. Treasury Securities
Related Articles
  1. Investing

    REITs As an Alternative to Real Estate Investment

    Does investing in real estate seem like too much maintenance? Consider the many advantages of REITs, or real estate investment trusts.
  2. Financial Advisor

    REITs: Should You Invest?

    Here’s what you need to know about Real Estate Investment Trusts (REITs) and how they can benefit you as an investor.
  3. Financial Advisor

    REITs: Still a Viable Investment?

    Are REITs viable investments now? Here's a look at the history of REITs' performance during rocky economic times and other factors that may impact returns.
  4. Investing

    A Look at REITs vs. Real Estate Mutual Funds (ESRT, TRREX)

    REITs and real estate mutual funds have their differences, yet they both offer liquidity and easy access to diversified real estate assets.
  5. Investing

    REITs 101: How They're Regulated

    Here's everything you need to know about REITs in less than five minutes.
  6. Investing

    Direct Real Estate Investing Versus REITs

    When considering whether to invest in a REIT or through direct investment in real estate, consider the amount of risk and responsibility you can handle.
  7. Investing

    How To Analyze Real Estate Investment Trusts

    Learn about REITs, which are much like dividend-paying companies but analyzing them requires consideration of the accounting treatment of property.
  8. Investing

    What Investors Can Expect from REITs in the New Year

    REITs have been hit hard over the past couple of months. Here's why, and what to look for next.
Trading Center