|
If you are not ready to start a Real Estate Investment on your own, but you like the stability that Real Estate provides but not the hustle, then perhaps you should look at investing in a Real Estate Investment Trust or REIT.
REIT´s usually behave better when the stock market is down, as it has in recent years; especially during the bull market years, REIT´s steadily performed better than any stock.
A REIT is a company that manages a portfolio of Real Estate property investments, making money from rent and fees, and paying most of their income to its shareholders in the form of dividends. To be exempt of taxes, REITs must pay out up to 90% of its income to its investors in an annually basis. They provide the beauty of dividends, ranging typically from 8 to 9% in a more stable less exiting environment, almost unknown in certain stocks. While high growth stocks only rely on appreciation of the stock and don´t pay any dividends, such is the case in the technology stocks, REITs do pay dividends! Dividends are considered an income so they will be taxed accordingly, the best strategy is to make them part of a 401(k) plan. The only variable affecting a REIT are interest rates, when interest rates go up, REITs go down and when interest rates go down3; REITs are king.
Depending on the REIT, they may invest in different types of properties like office complexes, rental apartment buildings or shopping malls or outlets, some of the best known are Plum Creek Timber investing in Timber, Simon Property Group investing in Shopping Malls and Equity Residential investing in Apartment Buildings among others. REITs not necessarily are diversified, as you may know, the ones mentioned specialize in only one type of real estate property. A favorite of many is Tanger Factory Outlet Centers that manages 30 Retail Outlet Centers in several states, performed beautifully last year giving a 60% return.
If you like to diversify3;Why not a REIT mutual fund? There are diversified groups of REITs the same way stock mutual funds are. In Real Estate they are known as Actively Managed Mutual Funds, Passively Managed Mutual Funds, Exchange Traded Funds and Closed end funds.
Exchange Traded Funds. These are traded as stocks in the American Stock Exchange and conveniently have very low fees. Cohen & Steers is one of the big ones in this business. The Dow Jones also offers a Real Estate Index.
Actively Managed Mutual Funds have a great potential with a little effort, if they are carefully examined and picked a Managed Fund can easily out perform the index. That was the case, last year, for Kensington Select Income up 13%.
Closed end Funds. These mutual funds only raise capital once with a limited amount of shares. Growing in popularity during the bear market years these funds are paying dividends in the range of 8 to 9%.
Passively Managed Mutual Funds. These mutual funds duplicate the results of a broad REIT index. Vanguard REIT Index is an example of passively managed funds.
The right allocation into stocks will assure less exposure to one specific segment, REITS offer a good counterweight to offset the ups and downs of the market, therefore it is typically recommended that a 10 to 20% of your portfolio of investments is allocated in these funds.
Examining the performance of these stocks over a determined period of time will demonstrate a steady performance by REITs. Most investments and stock sites will give you a comparison chart, the one to analyze and compare is Tanger Factory Outlets (SKT) with the S&P 500.
GBrey | 
