High income, inflation hedge!!! If you own your own home, then you have a stakein the real estate market. But the commercial real estate investmentmarket moves in a different cycle than the housing market, and canprovide some benefits that home ownership doesnt. If you want a stakein the commercial real estate market, there is no easier way to investthan to buy shares of a real estate investment trust (REIT). REITs are like stocks for the commercial realestate industry. They are trusts that buy commercial properties, suchas apartments, office buildings, and shopping centers that produceincome. When you buy shares of a REIT, you become a part owner in allof the property holdings of the REIT. REITs are traded like stocks on the major stockexchanges, so they provide the liquidity of stocks with thediversification and income of commercial real estate. REITs were first approved by Congress in 1960 tooffer small investors a chance to participate in the commercial realestate market. Although they were slow to catch on initially, they havebecome increasingly popular in recent years. There are now more than200 REITs available on the major stock exchanges, including about 150REITs on the New York Stock Exchange, and dozens more on the AmericanStock Exchange and NASDAQ market. You can buy them through any brokerand follow them in the daily stock listings of many newspapers (or theInternet). REITs have several attractive features. They payamong the highest yields of all types of investments, the dividendsoften increase from year to year, and they are easy to buy, sell andfollow. There are several different types of REITs available on the market: - Equity REITs own and operate income producingreal estate, such as apartments, warehouses, office buildings, hotels,and shopping centers.
- Specialized REITs focus on a particular type of property, such as shopping centers or health care facilities.
- Geographically-focused REITs specialize in asingle region or metropolitan area, while others try to acquireproperties throughout the country.Mortgage REITs lend money to realestate owners and operators, and raise income from the interestpayments on the mortgages.
- Hybrid REITs own properties and provide loans to real estate owners.
REITs are closely regulated, and must meet certain requirements: - Must be managed by a board of directors
- Must pay shareholder dividends of at least 90 percent of its taxable income.
- Must invest at least 75 percent of total assets in real estate assets.
- Must derive at least 75 percent of gross income from rents from real property or interest on mortgages on real property.
- Must be managed by a board of directors
- Must have a minimum of 100 shareholders.
- Must have no more than 50 percent of the shares held by five or fewer individuals.
Who should buy REITs? REITs are geared to both large and smallinvestors interested in current income and a stake in the real estatemarket as part of a diversified portfolio. Who should not buy REITs? REITs would not be attractive to investorslooking for capital appreciation. REITs distribute 90 to 100 percent ofpre-tax earnings each year to shareholders in the form of dividends,but the value of the shares tends to change very little from year toyear. REITs also may not be appropriate for you if youdont need the income and you want to minimize your taxes. Thedividends paid by REITs are added to your total taxable income, so youwill owe more taxesunless you use REITs in your IRA or othertax-deferred retirement plan. Return The rate of return offered by REITs isoutstanding as compared with other income-producing investments. Inrecent years, while money market funds were paying 1 to 2 percent andmany government bonds were paying under 5 percent, many REITs werepaying dividends of 6 to 12 percent. And the dividends for many REITsincrease nearly every year, providing yet another advantage over bondsand other traditional fixed-income investments. Although most REITs provide pretty steadyperformance, there are risks with REITs. In a down economy, ifvacancies increase in the commercial properties owned by the REIT,income could decline. In a very slow market, you could see a decline inyour income as well as in the value of your REIT shares. Upside The biggest upside to REITs may be their high yields, but there are some other benefits as well, such as: - Increasing stream of income. REITs often increase their dividends each year providing investors with a steadily increasing stream of income.
- Inflation hedge. Owningreal estate can be an inflation hedge. Real estate often rises in valuealong with inflation, so the value of your investment in real dollarsstays about the same regardless of inflation. And the increasing streamof income REITs provide compensates for the increasing costs ofinflation.
- Professional management.Professional real estate managers run the business, select theproperties, handle the maintenance and leasing and the many otherintricate details of the business, while you sit home and collect yourdividend checks.
- Easy to buy.Buying REITs is as easy as calling your broker or making a few clicksin your online brokerage account. REITs trade like stocks on the majorstock exchanges, so they are very easy to buy and sell. They give you achance to own real estate without evaluating properties, dealing withreal estate agents and bankers, and personally maintaining theproperties.
- Low Price of Admission. Thecost of buying commercial real estate on your own could be millions ofdollars. Even in a limited partnership real estate deal, you might berequired to put up $25,000 to $100,000 or more. But with REITs, you canpick your price. If you want to buy a few hundred dollars or a fewthousand dollars worth of REIT shares, you have that option. In fact,you can buy shares of two or three REITs if you want to diversifywithin the REIT universe. Its all very affordable.
- Liquidity.You can buy or sell REITs whenever the stock market is in session, soyou have excellent liquidity. By contrast, many limited partnershipsrequire you to leave your money in for five to 10 yeas. Or if you ownyour own commercial property, selling it can be a major ordeal. With aREIT, you can buy or sell with a call to your broker or a couple ofclicks in your online brokerage account.
Downside The downside to REITs is that they providelittle, if any, capital appreciation. They do provide excellent income,but that income is taxable, so it can increase your tax burden (unlessyou use REITs in your IRA or other tax-deferred retirement plan). How to Buy REITs Buying REITs is the same as buying stocks. You can buy shares of REITs through your broker or through any online broker. Biggest Concerns The value of your REIT shares and the dividendthey pay depends on the strength of the real estate market. In adepressed real estate market, you could see the value of your sharesdecline. In a bad commercial real estate market, rising vacancy rateswould also cut into income collected by the REIT, which would reducethe amount of your dividend. Timing It would be a good idea to have a small portionof REITs in your portfolio at all times because of the diversificationthey offer. However, they are particularly attractive during periods oflow interest rates and a down stock market. Typically when stocks arefaltering, real estate can buoy the portfolio. And when bond interestrates are low, REITs can provide a much better stream of income. REITs are less attractive when the stock marketis boomingsince returns from REITs fall short of the average annualreturns from stocks. They are also less attractive during periods ofhigh interest rates, when you can do almost as well with governmentbonds and triple A corporate bonds as you would with a REIT. For the perfect time to buy a REIT is when theeconomy is coming out of recession, and business is picking up. At thatpoint, real estate prices may still be a little depressed, but businessgrowth will soon lead to higher office and warehouse occupancy rates. Monitoring Your REITs You can follow your REITs exactly as you followany stock. REIT share prices are listed in the usual stock tables inthe business section of many major newspapers, USA Today, The WallStreet Journal, or Investors Business Daily. You can also find theircurrent share prices on the Internet at any of the many financial Websites that feature stock prices. Most REITs trade on the New York StockExchange, the American Stock Exchange or the NASDAQ market, althoughsome are traded on the smaller over-the-counter market. Asset Allocation As with all types of investments, the amount ofyour savings that you allocate for REITs should depend on your taxsituation, your financial situation, your investment goals and yourthreshold for risk. Investors interested in income might want to loadup on REITs, with 10 to 30 percent of your portfolio in REITs sincethey offer a stream of income that is among the best in the investmentmarket. Because they are taxable, unless you need the income, you might want to put your REITs in your tax-sheltered retirement account. Special Considerations When selecting a REIT, you may want to look at several factors: - What is the dividend yield and how does thatcompare with other REITs? Since income is the main benefit of REITs,you may as well look for one that pays a relatively high return.
- What is its track record? Look at the REITspast growth record and dividend payment history. Look for a REIT thathas maintained a fairly steady stock price the past few years, and,perhaps even more importantly, a steadily increasing dividend.
- Check out the company. Nearly all REITs have aWeb site. Go to the Web site, check out the information on the company,its history, its management, and its investment properties. You mightwant to look over several REITs to compare and contrast before making adecision. If the yield is high, the track record is solid with steadilyrising dividends, and the company and its management look good, thatsa good sign. However, for the sake of safety and diversification, youmight want to spread your money around to two or three different REITs.
- How is the market for the type of propertiesthe REIT owns? For instance, if office space or apartment units arefilling up around the country, theres a good chance that REITs thatinvest in those types of properties would soon see an increase inearnings. But if the economy is slowing down and vacancies are rising,you may want to avoid those REITs.
Here is a list of the REITs that trade on the major stock exchanges: NEW YORK STOCK EXCHANGE: Company Name: Ticker: Acadia Realty Trust AKR Agree Realty Corporation ADC Alexander's Inc. ALX Alexandria Real Estate Equities, Inc. ARE AMB Property Corporation AMB America First Mortgage Investments, Inc. MFA American Land Lease ANL American Residential Investment Trust, Inc. INV Amli Residential Properties Trust AML Annaly Mortgage Management, Inc. NLY Anthracite Mortgage Capital Inc. AHR AIMCO AIV Apex Mortgage Capital Inc. AXM Archstone-Smith ASN Arden Realty Group, Inc. ARI Asset Investors Corporation AIC Associated Estates Realty Corp. AEC AvalonBay Communities Inc. AVB Bedford Property Investors BED Boston Properties, Inc. BXP Boykin Lodging Company BOY Brandywine Realty Trust BDN Brookfield Properties Corporation BPO BRE Properties, Inc. BRE BRT Realty Trust BRT Burnham Pacific Properties, Inc. BPP California Preferred Capital Corp. CFP Camden Property Trust CPT Capstead Mortgage Corporation CMO CarrAmerica Realty Corporation CRE Catellus Development Corporation CDX CBL & Associates Properties CBL Center Trust Properties CTA CenterPoint Properties Trust CNT Chateau Communities, Inc. CPJ Chelsea Property Group CPG Chevy Chase Preferred Capital Corp. CCP Clarion Commercial Holdings Inc. CLR Colonial Properties Trust CLP Commercial Net Lease Realty NNN Cornerstone Realty Income Trust TCR Corporate Office Properties Trust OFC Correctional Properties Trust CPV Cousins Properties, Inc. CUZ Crescent Real Estate Equities, Inc. CEI CRIIMI MAE, Inc. CMM Crown American Realty Trust CWN Developers Diversified Realty Corporation DDR Duke Realty Corporation DRE EastGroup Properties, Inc. EGP Elder Trust ETT Entertainment Properties Trust EPR Equity Inns, Inc. ENN Equity Office Properties Trust EOP Equity One, Inc. EQY Equity Residential EQR Essex Property Trust, Inc. ESS Federal Realty Investment Trust FRT FelCor Lodging Trust Inc. FCH First Industrial Realty Trust FR First Union Real Estate Investments FUR Forest City Enterprises FCE.A Gables Residential Trust GBP General Growth Properties, Inc. GGP Glenborough Realty Trust Inc. GLB Glimcher Realty Trust GRT Great Lakes REIT GL Health Care Property Investors, Inc. HCP Health Care REIT, Inc. HCN Healthcare Realty Trust, Inc. HR Highwoods Properties, Inc. HIW Home Properties of New York, Inc. HME Hospitality Properties Trust HPT Host Marriott Corporation HMT HRPT Properties Trust HRP Innkeepers USA Trust KPA IRT Property Company IRT iStar Financial Inc. SFI JDN Realty Corporation JDN Keystone Property Trust KTR Kilroy Realty Corporation KRC Kimco Realty Corporation KIM Koger Equity, Inc. KE Konover Property Trust, Inc. KPT Kramont Realty Trust KRT La Quinta Properties, Inc. LQI LaSalle Hotel Properties LHO LASER Mortgage Management, Inc. LMM Lexington Corporate Properties, Inc. LXP Liberty Property Trust LRY LTC Properties, Inc. LTC Macerich Company, The MAC Mack-Cali Realty Corporation CLI Malan Realty Investors, Inc. MAL Manufactured Home Communities MHC MeriStar Hospitality Corporation MHX Mid-America Apartment Communities, Inc. MAA Mid-Atlantic Realty Trust MRR Mills Corporation, The MLS Montgomery CV Realty Group CVI National Golf Properties, Inc. TEE National Health Investors, Inc. NHI Nationwide Health Properties, Inc. NHP New Plan Excel Realty Trust NXL Novastar Financial, Inc. NFI Omega Healthcare Investors, Inc. OHI Origen Financial, Inc. OFI Pacific Gulf Properties PAG Pan Pacific Retail Properties PNP Parkway Properties Inc. PKY Pennsylvania REIT PEI Phillips International Realt Corp. PHR Plum Creek Timber Company PCL Post Properties, Inc. PPS Prentiss Properties Trust PP Prime Group Realty Trust PGE Prime Retail, Inc. PRT ProLogis PLD Public Storage, Inc. PSA RAIT Investment Trust RAS Ramco-Gershenson Properties Trust RPT Realty Income Corporation O Reckson Associates Realty Corp. RA Redwood Trust, Inc. RWT Regency Centers Corporation REG RFS Hotel Investors, Inc. RFS Rouse Company, The RSE Saul Centers, Inc. BFS Security Capital Group, Inc. SCZ Senior Housing Properties Trust SNH Shurgard Storage Centers, Inc. SHU Simon Property Group, Inc. SPG Sizeler Property Investors, Inc. SIZ SL Green Realty Corp. SLG Sovran Self Storage SSS Starwood Hotels & Resorts HOT Storage USA, Inc. SUS Summit Properties Inc. SMT Sun Communities, Inc. SUI Tanger Factory Outlet Centers, Inc. SKT Taubman Centers, Inc. TCO Thornburg Mortgage Asset Corporation TMA Town and Country Trust, The TCT Transcontinental Realty Investors, Inc. TCI Trizec Properties, Inc. TRZ U.S. Restaurant Properties USV United Dominion Realty Trust, Inc. UDR Universal Health Realty Income Trust UHT Urstadt Biddle Properties, Inc. UBP Ventas, Inc. VTR Vornado Realty Trust VNO Washington Real Estate Investment Trust WRE Weingarten Realty Investors WRI Winston Hotels WXH AMERICAN STOCK EXCHANGE: Company Name: Ticker: Aegis Realty Inc. AER American Mortgage Acceptance Company AMC AMC AmeriVest Properties Inc. AMV Anworth Mortgage Asset Corporation ANH Arizona Land Income Corporation AZL BNP Residential Properties, Inc. BNP Capital Alliance Income Trust CAA Commercial Assets Inc. CAX FBR Asset Investment Corporation FB Golf Trust of America, Inc. GTA Hanover Capital Mortgage Holdings, Inc. HCM Hersha Hospitality Trust HT HMG/Courtland Properties, Inc. HMG Impac Commercial Holdings, Inc. ICH Impac Mortgage Holdings, Inc. IMH Income Opportunity Realty Investors IOT InnSuites Hospitality Trust IHT Mission West Properties MSW National Health Realty NHR One Liberty Properties, Inc. OLP Pacific Gateway Properties PGP Pittsburgh & West Virginia Rail Road PW PMC Commercial Trust PCC Presidential Realty Corporation (Class B) PDL B Price Legacy Corporation XLG PS Business Parks, Inc. PSB Resource Asset Investment Trust RAS Roberts Realty Investors, Inc. RPI Shelbourne Properties, Inc. I HXD Shelbourne Properties, Inc. II HXE Shelbourne Properties, Inc. III HXF Stonehaven Realty Trust RPP United Mobile Homes, Inc. UMH Wellsford Real Properties, Inc. WRP NASDAQ: Company Name: Ticker: Amresco Capital Trust AMCT Bando McGlockin Capital Corporation BMCC Banyan Strategic Realty Trust BSRTS Capital Automotive REIT CARS Humphrey Hospitality Trust, Inc. HUMP Jameson Inns, Inc. JAMS Maxus Realty Trust, Inc. MRTI Monmouth Real Estate Investment Corp. MNRTA Pinnacle Holdings, Inc. BIGT |