In today’s volatile real estate market, should REITs be part of your portfolio? In order to answer that question, you first need to know what REITs are all about.
A Real Estate Investment Trust (commonly referred to by its acronym) is a trust company that gathers a sum of money through an initial public offering, or IPO, then uses that money to manage, develop, buy or sell real estate.
The shares of a REIT trade like stocks, except that you, the investor, are not buying shares in only one company. Instead, you are buying pieces of real properties or real-estate mortgages owned. You can find REITs across many categories, including apartment complexes, storage units, foreign property, hotels, retail, and many others.
When property values are going up, your shares are sitting pretty. When mortgages default or real estate prices take a dive, REITs can lose value as well. However, losses may be buffered by income that managed properties in the trust are still producing.
On the plus side, REITS are a great way to invest in real estate without having to come up with all the capital needed to own entire properties. Another advantage is that the trusts are required to divvy up among shareholders almost 90 percent of their annual taxable income created by income-producing real estate.
With real estate prices falling in many areas, some REITs are trading at what may be rock-bottom prices, offering potential bargains for investors willing to do their homework and forecast the right REITs for their portfolio.
Tags: property, REAL ESTATE, REIT