REITs
Real Estate Investment Trusts

REITs (Real Estate Investment Trusts), although not very well known, are a sensible way to invest in real estate without having to purchase your own property. A REIT is essentially a publicly traded company in the US or Canada that invests in real estate property. They come in all sizes and types, and some focus on certain regions while others are more diversified. Some REITs invest in commercial property, while others focus on residential real estate. There are even REITs that focus on university housing.

Overall, I think REITs are a good investment choice for 2 reasons:

1. It offers an easy way to invest in real estate and diversity a portfolio
2. It offers steady income in the form of dividends

By law, REITs are required to distribute most of its taxable income (90% or more) to its shareholders in the form of dividends. As a result, REITS offer some generous dividend returns, often in the range of 6-7%. However, because these dividends are "passed through" to investors (not taxed first), they do not qualify for the 15% dividend tax rate. Over the last few years, thanks to the real estate boom, many REITs have also seen significant price appreciation in addition to its generous dividend returns.

You can buy REITs at most brokerages in the same way you would buy regular stocks. The main problem I have noticed about REITs for individual investors is that there are very few services or newsletters that rate or follow REITs and offer meaningful recommendations. Forbes does offer a "Report Card" on REITs, which is a great starting point for doing more research on which REITs you may want to purchase. Another option is to buy Real Estate Mutual Funds, which primarily invest in REITs.

The Valueline Investment Survey, one of the most trusted investment letters in the industry, also tracks a number of REITS, and follows it as one of its industry groups.

>> See Forbes' Ratings of REITS

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