Real Estate Investment Trusts (REITs)
Investing in real estate can provide both diversity to a portfolio and a nice rate of return if values appreciate over time. But a direct investment in real estate can be expensive and risky. Liquidity can be limited due to unpredictable market conditions and a lack of interested buyers, especially for commercial or industrial real estate.
A real estate investment trust (REIT) is a type of company that is modeled on a mutual fund, but is technically an equity security. A REIT buys, develops, manages, and sells a portfolio of income-producing properties. Because a REIT is a trust, it sells shares of beneficial interest. The holder of these shares receives benefits from the assets held by the trust—in this case, real estate—but does not own the actual assets. By owning a REIT, investors can take part in real estate’s potential benefits, including price appreciation and income, without the added burden of owning and managing property.
REIT shareholders receive dividends from investment income (primarily