Should I invest in REITs?

Real estate investment trusts, or REITs, are companies that own, operate, lease, or finance income-producing real estate. In general, REITs specialize in a specific kind of property – say, movie theaters, strip malls, health care facilities, storage units, resorts, or office properties.

Let’s take a look at some other key features of REITs and how they can affect your portfolio…

Liquidity

REITs operate a lot like a stocks—in fact, you’ll often hear people refer to them as “real estate stocks.” Most are publicly traded in the major exchanges, although there are also public non-listed and private REITs. However, unlike actual real estate property, they can be easily and quickly sold. And you don’t have to deal with pesky tenants!

Diversification

Here at The Motley Fool, we believe that diversification is key to successful, long-term investing. As we’re guessing you already know, putting all of your eggs in one basket can be a risky investment strategy. Adding a few REITs to your portfolio provides diversification.

Dividend yields

In order to qualify for REIT status, a corporation must distribute at least 90% of its funds from operations (FFO) in the form of dividends to unitholders (fancy REIT-speak for shareholders). In return, the corporation doesn’t have to pay U.S. federal income taxes.

As you can probably guess, this 90% requirement means that REITs can be pretty strong income vehicles for unitholders. However, keep in mind that the dividends are non-qualifying, so unitholders will pay income tax at the full rate. Nevertheless, REITs can be a good option for people who are looking for reliable dividend payouts and long-term capital appreciation.

If you want more Foolish information on REITS, check out Fool Dan Caplinger’s The Right Way to Play REITs or our Motley array of public discussion boards.

— Answer provided by Motley Fool member Paul Thomas, CMFMutwa

Related Articles

2 Comments

  1. Mike

    Eddie has closed 40 Sears Hometown stores in the last two months. 35 were closed last month and another 5 are set to close this month. There are Sears and Kmarts closing almost monthly. He closes them a few at a time to stay under the media radar.

  2. LES KOVALCIK

    I LISTENED AND WATCHED YOUR RECENT PROGRAM……….I WILL THINK ABOUT THE $129 2YEAR …..THANKS FOR YOUR INFO.