Understanding Reits – A High Yield Investment

reit-coins

The stock market has been very volatile for the last 12 months. So, what is a nice safe investment to add to your portfolio that will provide high yield income?

REIT’s – Real Estate Investment Trusts

A REIT is a way to invest in real estate without actually owning the property. A REIT is a company that owns and operates income generating real estate. REITs can own commercial properties from office and apartment buildings to hospitals, retirement homes, warehouses, hotels, shopping centers, cell phone towers and timberlands. REITs are also a major factor in financing the housing market. REIT, similar to BDC’s pay little or no corporate income tax and must distribute at least 90 percent of taxable income as dividends to investors. This results in many cases in both capital growth and high-yields. REIT’s trade just like stocks.

There are two basic types of REIT’s Equity REITs and Mortgage REITs. An Equity REIT owns property like office buildings, shopping malls, hotels, warehouses, hospitals, etc. A Mortgage REIT invests in mortgages of property.

According to a study, nearly half of all publicly traded REIT shares are held in pension plans and retirement accounts. Public and private pension plans and 401(k)s account for 29.1 percent of REIT shares, while investors with IRAs hold an additional 18.1 percent of REIT shares.

The performance of a REIT follows the real estate market more closely than it follows the stock market. Dividends are taxed at the same rate as income, so the higher dividends mean you will likely pay more taxes unless you hold them in a tax-deferred account like your IRA or 401K.

On September 1, 2016 Real Estate will become a separate sector in the S&P, previously RE was grouped in with Financials and had very little visibility. Mutual funds will be buying REIT’s ahead of this change to make sure they are positioned to hold some of the new index.

I’ll also warn you that like all other high-yielding investments that are subject to the volatility of changing interest rates, REIT’s can be also. In general REIT’s won’t be effected too much as long as rates don’t rise quickly.

Here are my current REIT Holdings (about 5-6% of my portfolio):

Hospitality Properties Trust (HPT) Healthcare  7.81% yield

HCP, Inc (HCP) Healthcare   6.88%  yield

American Capital Agency (AGNC)  MReit 12.53% yield

Annaly (NLY)  MReit  11.15% yield

Stag Industrials (STAG)  Industrial Warehouses 6.28% yield

Realty Income Corp (O)  3.92% yield  Triple Net REIT, ***** Great Capital Appreciation ******

Great web site: http://www.dividendyieldhunter.com/

I also follow http://seekingalpha.com/   Brad Thomas, research analyst and he currently writes weekly for Forbes and Seeking Alpha where he maintains research on many publicly-listed REITs.

 

 

 

 

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