Real Estate Investment Trusts                                               Return to Learning center

Prior to 1960, only wealthy individuals and corporations had the financial resources necessary to invest in significant real estate projects such as shopping malls, corporate parks and health care facilities.

In 1960, Congress passed the Real Estate Investment Trust Act of 1960 with tax incentives to allow the average American to pool their resources together to form companies – Real Estate Investment Trusts (REITs) – to own and  manage income-generating real estate properties. 

REITs are governed by a board of directors and may be publicly traded on a major stock exchange in the same way shares of a corporation’s stock are traded. Just like other publicly offered companies, REITs must provide investors with prospectuses, annual reports, and other periodic updates.  Private REITs (those that are not traded daily on the stock exchange) have certain risks such as illiquidity of the investment.

Excellent tools for Retirement income
A REIT pays cash dividends generated from rental income paid by tenants in the buildings the REIT owns.  Therefore, REITs often times make
sense in a retirement portfolio. 

Using REITs for Diversification
Real Estate investing offers an attractive alternative to common stock, bond and mutual fund investing.   REITs often operate in a specific area of expertise.  Some examples are:

• Health Care REITs, 
• Office and Industrial REITs,
• Self Storage REITs, 
• Retail REITs,
• Residential REITs, and
• Hotel and Resort REITs.

Some sectors of REITs are more closely tied to the overall economy, while others are more resistant to recession.  Investors who include REITs in their portfolios for diversification purposes must keep in mind that their REITs
should also be geographically and sector diversified.
 

Other Benefits of Investing in REITs

• A REIT allows individual investors to own a share of large, income producing real estates,
• A REIT must distribute at least 90% of its annual taxable income as dividends to its shareholders,
• The properties owned by a REIT are professionally managed.

For more information about how you can invest in REITs and the risks associated with REITs, please call us at 408-356-7010.

REITS are not FDIC insured and may lose value. Past performance does not guarantee future results.