Commonly referred to as real estate stocks, real estate investment trusts
(REITs) are investment companies that own (and most often operate)
income-generating real estate. There are three types of REITs:
According to the National
Association of Real Estate Investment Trusts (NAREIT), approximately
190 REITs are traded on one of the major stock exchanges in the USA.
Those REITs list assets in excess of $400 billion. In 2001, Standard
& Poor's recognized the importance of REITs to U.S.' equity markets
overall when it included REITs in its S&P 500 index.
- Equity REITs: By far the most common (96.1% of all REITs are
of this variety), equity REITs own real property (including residential,
commercial, and industrial real properties) and produce income from
- Mortgage REITs: Only 1.6% of all REITs are of this variety,
which lend money to real estate owners and operators and/or acquire
existing mortgages and mortgage-backed securities.
- Hybrid REITs: 2.3% of all REITs are hybrids, which own real
property (as equity REITs do) and mortgages (as mortgage REITs do).
REITs have a number of benefits:
As always, before you invest, do your homework. Hiring a broker
who specializes in REITs is certainly the easiest way, but you can also
find reliable information on your own. The NAREIT website and the
SEC's REIT web page are good places to start, and this
commercial real estate page provides helpful information about
the types of real estate in which REITs often invest.
- Performance. This data research table compares compound annual returns of REITs and leading U.S. benchmarks in recent years.
In most cases, REITs compare favorably with the S&P 500, the Russell 2000, and the Barclays Capital Aggregate Bond Index.
- Dividends. To be considered for pass-through taxation (passing
profits to investors without taxation) a REIT must pay at least 90% of
its taxable income as dividends to shareholders each year, more than
most investments pay.
- Diversification. Real estate can be an effective way to
diversify your investment portfolio. In contrast to investing
directly in real estate that you have to manage yourself, REITs allow
you the benefit of real estate investments without the hassles (and
potential losses) associated with directly owning real estate
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REITs - Real Estate Investment Trusts Guide