From what I understand, they’re like mutual funds, only instead of investing in company stocks, you’re investing in little bits of real estate, a bit of a warehouse here, a smidgen of a mall there.
I hadn’t heard of them until recently. Has anyone invested in a REIT? Are they a good investment for the long haul? Do you pay commissions or fees? How does one go about finding a REIT to invest in? Would my CPA know about it, or should I call my bank?
Any other advice would be greatly appreciated.
A REIT is a Real Estate Investment Trust. They can be purchased singly in much the same way one might purchase a stock. In that case you pay the market price for a share of the REIT and a commission on the sale. You can also purchase a Real Estate mutual fund which holds REITS. A single REIT might hold one or many properties and pass the income and gains on to the holder of the security.
Now, as to the advisability of REITs as investments. Many people are big fans, I am not, but I will give you both sides of the argument. Fans would say REITs:
- Are less volatile than stocks
- Don’t have a high degree of correlation with the stock market
- Can pay a strong dividend
- They may be overvalued at this point in time.
- It is generally harder to find information on a REIT than a stock. Thus it is harder to evaluate whether it is an approriate investment.
- Tax changes may favor other investments over REITs damaging their long term value.
- Most people already have much of their wealth dependent on Real Estate (their house). So adding more may not leave your investments diversified enough.
If you were to invest in this type of instrument I would go with a highly rated Real Estate mutual fund. You could look on Morningstar for your choices and the fees and minimums. This could be a good long term investment, but I wouldn’t devote to much of your money to just one area. Good Luck!