Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



REITs on a Tear

Relatively speaking, REITs (real estate investment trusts) have been on a roll lately. The FTSE NAREIT Equity REIT Index, for example, was up 1.4% in the first quarter of 2008, while the FTSE NAREIT All REIT Index was down 0.4%. And if those don't sound like great returns, well, consider how the rest of the market did.

The REIT basics
Real estate investment trusts combine the capital of many investors to acquire or finance all kinds of real estate, including offices, hotels, shopping centers, and apartments. A REIT is a little like a real estate-focused mutual fund. Like a fund, its portfolio is professionally managed and diversified, holding many properties. REITs typically trade on major stock exchanges.

But REITs are also unique in many ways. For starters, corporations or trusts that qualify as REITs generally don't pay federal corporate income tax, and they're often exempt from state income tax, too. They're required to invest at least 75% of their assets in real estate, and they must pay out at least 90% of their income as dividends. In good years, REIT dividends can run quite high, sometimes topping 10%. (You can learn more about REITs on our REITs discussion board.)

A real (estate) advantage
In Q1 2008, when the equity REITs rose 1.4% and all REITs dropped 0.4%, the S&P 500 fell 9.4%. The Dow Jones Industrial Average (which contains just 30 companies, by the way) was down 7.6%, and the Nasdaq dropped 14.1%. Being up 1% when an alternative is down 9% marks a 10-percentage-point difference. With a $10,000 investment, that's $1,000 more for you.

True, REITs underperformed the broader market in 2007, though they beat it in several previous years:


All-REIT index

S&P 500














Are REITs for you?
David Swenson, manager of Yale University's multibillion-dollar endowment, whose amazing record includes a 28% gain last year, recommends that typical investors devote 20% of their portfolios to real estate.

If you're interested in adding REITs to your holdings, consider starting your search with those large enough to have made it into the S&P 500. They include Host Hotels & Resorts (NYSE: HST  ) , Boston Properties (NYSE: BXP  ) , Equity Residential (NYSE: EQR  ) , Simon Property Group (NYSE: SPG  ) , and Plum Creek Timber (NYSE: PCL  ) .

If you'd rather not spend the time or energy studying lots of real-estate companies, you might focus instead on real-estate-focused mutual funds, letting smart managers make the buy-or-sell decisions for you. Consider these five- and 10-year compound average annual returns:




CGM Realty (CGMRX)



ING Van Kampen Real Estate (IVRSX)



Alpine International Real Estate (ELGRX)




A free trial of our Motley Fool Champion Funds newsletter can introduce you to many terrific mutual fund recommendations, including some focused on real estate. (I've found a bunch of winners via the newsletter, myself.) A free trial includes full access to all past issues, so you can read about each recommendation.

Learn more in these articles:

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 619368, ~/Articles/ArticleHandler.aspx, 10/26/2016 9:26:46 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 10 minutes ago Sponsored by:
DOW 18,199.33 30.06 0.17%
S&P 500 2,139.43 -3.73 -0.17%
NASD 5,250.27 -33.13 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 4:02 PM
BXP $122.89 Down -2.44 -1.95%
Boston Properties CAPS Rating: **
EQR $61.15 Up +0.78 +1.29%
Equity Residential CAPS Rating: ***
HST $15.01 Down -0.39 -2.53%
Host Hotels and Re… CAPS Rating: ***
PCL.DL $0.00 Down +0.00 +0.00%
Plum Creek Timber CAPS Rating: ****
SPG $188.38 Down -8.89 -4.51%
Simon Property Gro… CAPS Rating: **