Large caps, mid caps, bonds. When it comes to your investments, are you tired of the same old, same old? Then you may want to add a little variety to your portfolio with a REIT — a Real Estate Investment Trust.*
All of the Benefits, None of the Responsibilities
Maybe you’ve thought about investing in real estate but don’t want to be a landlord. A REIT offers the benefits of the former without the hassles of the latter. REITs are companies that buy, manage, and sell real estate assets. Investors purchase shares in a professionally managed portfolio of commercial properties or mortgage loans. In return, they receive a share of the earnings generated from the REIT’s holdings. REIT shares offer a potential advantage over owning traditional real estate because they can easily be converted into cash.
Just like Stocks?
Like stocks, REITs are typically traded on the major stock exchanges. But unlike some stocks, REITs usually pay regular dividends. REIT investors typically are looking for a combination of stable current income and long-term growth potential. Together with stock and bond investments, REITs may add diversification to your portfolio, since, historically, REITs have moved in different directions from other asset classes.
The Right REIT
REITs are divided into three broad categories. The largest category is equity REITs. They invest in and own property, and their revenues come mostly from rental income. Mortgage REITs — a very small percentage of all REITs — generate revenues from interest earned on mortgage loans. Hybrid REITs — also a small percentage — invest in both properties and mortgages.
Individual REITs may concentrate their investments in a particular geographical area or property type, such as health-care or industrial facilities, apartments, office buildings, and so on. Buying mutual funds that specialize in REITs can provide diversification.
Pay Attention to Management
Good management is important, so consider the experience of the management team and how long team members have worked together. You can find information on a REIT’s investments and objectives in its annual report and prospectus. Read the prospectus carefully and talk to your financial professional before you invest.
*REITs involve risks such as refinancing, economic conditions in the real estate industry, changes in property values, dependency on real estate management, and other risks associated with a portfolio that concentrates its investments in one sector or geographical region.
Close Window