Investing in REITs

Investing in REITs? Why invest in REITs? REITs are the easiest way for investors to gain exposure to the real estate market. REITs are extremely liquid, as they are traded directly on the stock exchanges.

REIT Definition

What is a REIT

What are REITs? Real Estate Investment Trusts (REITs) are tax-efficient vehicles that allow investors to own a diversified real estate portfolio. REIT mutual funds, like stock mutual funds, are exempt from federal, state and even local taxes, so long as the fund invests at least 75 percent of its total assets in real estate assets, derives at least 75 percent of its gross income from real estate property rents, and pays dividends of at least 90 percent of taxable income.

Invest in REITs

However, REITs – like some stock mutual funds – are expensive to invest in. Costs of management and administration can go up to 2 percent.

REIT Mutual Funds

REIT mutual funds add another layer of fund management, and are very popular now as they allow the investor easy exposure to thousands of properties in different market segments across the country. Thus, they are a very convenient way to gain exposure to the real estate market.

Types of REITs

Equity REITs

Equity REITs are the purest form of real estate holding. They invest entirely in real estate properties.

Mortgage REITs

Mortgage REITs do not own property directly. Instead, mortgage REITs finance properties through commercial loans. Thus, they are a type of bond investment.

Hybrid REITs

Hybrid REITs hold a mix of both real estate properties and real estate mortgages.

Low-cost REIT Mutual Funds

Investing in REITs? Some low-cost REIT mutual funds that you can consider include the iShares Dow Jones U.S. REIT (IYR) listed on the Dow Jones US REIT Index, the Vanguard REIT Index Fund (VGSIX) listed on the Morgan Stanley REIT Index, and the StreetTRACKS Wilshire REIT (RWR) listed on the Wilshire REIT Index.

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