Are REITS Right for Your Portfolio?

Real Estate Investment Trusts offer a way for smaller

investors to buy into big real estate.

If you dream of emulating Donald Trump but dont have millions to invest in real estate, a Real Estate

Investment Trust or REIT can provide some of the upside income potential with a much smaller investment.

Simply put, a REIT is a way for everyday investors to invest in property and real

estate. It can be commercial real estate, apartments, condominiums, homes and

other types of property. REITs specifically invest in properties that produce

income and pass on the profit to investors in the form of dividends. In fact, REITs

must distribute at least 90% of any profit to qualify for preferential tax treatment.

Investors can buy, sell and trade shares of REITs just as they would a normal

stock. However, because a REIT deals with real estate instead of widgets, they

differ in how they finance expansion and measure profitability. Normal investor

screening criteria like P/E ratios may not apply to a REIT the same as to another

equity investment. On the other hand, like a stock, investors in REITS look for

trustworthy and competent management and reasonable compensation of those

managers. Stay well informed on trends, and companies such as Cole Capital

REIT opportunities.

REITs come in three major forms. The most common and widely purchased are

shares of equity REITs, which invest in commercially managed property that

produce income. This is generally the type of REIT that is referred to when

discussing them as an investment tool.

Less common versions of REITS include mortgage REITs, which make loans to

owners of real estate or invest in current outstanding mortgages. According to

Investopedia.com, these REITs account for less than 10% of REITs available

today. The final version is a hybrid of the equity REIT and the mortgage REIT and

also accounts for a small percentage of REITs. These hybrids combine the

mortgage investment of one with the property management of the other.

Most REITs contain numerous properties ranging in size, activity and function.

Like portfolio diversification, a REITs diversification may provide some

protection from the ups and downs of individual properties such as occupancy

rates, defaults on rents, and downturns in industry sectors or local markets.

Specialized REITs hold only specific types of property, such as apartments,

commercial office space or retail.

Like other investments, REITs carry the risk of loss of investment. Because they can be a complicated

investment product, consult your financial professional before investing to better understand whether REITS

are right for your portfolio.