A Publication of WTVP

Investing in real estate can be a rewarding experience, offering both tangible appeal and performance potential. Like most Americans, you may think of real estate investment as purchasing a house or a plot of land. However, investment opportunities reach far beyond your front door or lot line. An investment in shopping centers, office buildings and hotels may be just as gratifying to you as home ownership, thanks to real estate investment trusts (REITs).

REITs are companies that invest in portfolios of professionally managed properties. They come in three varieties:

  1. Equity REITs own real estate assets and make up most of the market.
  2. Mortgage REITs loan money to real estate owners or invest in existing mortgages or mortgage-backed securities.
  3. Hybrid REITs combine the investing strategies of both equity and mortgage REITs.

REITs enjoy certain tax advantages but must meet a series of investment and operating requirements: To qualify as a REIT, a company must invest at least 75 percent of its total assets in real estate assets; it must derive at least 75 percent of gross income from rents or interest on mortgages; and most importantly, it must pay dividends of at least 90 percent of its taxable income in the form of shareholder dividends.

REITs have characteristics of both stocks and bonds, but have historically exhibited a low correlation to both. REITs combine a steady income component with dividend growth potential and the opportunity for capital appreciation. Historically, REITs have generated market-comparable returns with lower volatility. Combining each of these return characteristics suggests that REITs add significant portfolio diversification benefits.

What advantages can REITs offer to me?

What factors should I consider when selecting a REIT?

Are there risks associated with REITs?

As with any investment, REITs have associated risks that you should consider before adding them to your long-term portfolio.

Real estate remains a classic investment in America’s future, and REITs make this investment a great way to add total return potential to a diversified, long-term portfolio. Your financial advisor can help you determine ways to incorporate these professionally managed investments into your portfolio. IBI