REIT Suitability
REITs provide a way for individual investors to earn a share of the income produced through commercial real estate ownership. The investor can benefit from capital appreciation and dividends without having to buy and operate commercial real estate. REITs generally are income-producing investments, as REITs must pay out at least 90% of their income as dividends. They also have the potential for long-term capital appreciation. REIT dividends may be protected from erosion due to inflation, because rental rates tend to rise during inflation. Returns on listed REITs historically have had a low correlation with the returns of other equities and fixed-income investments. Thus, investing in REITs can add diversity to a portfolio. REITs have shown a reliable dividend yield through a range of market conditions.
Shares of publicly traded REITs are sold on the stock market or the OTC market. Non-traded REITs, or non-exchange traded REITs, also register with the SEC, but shares can be bought only through a specialized broker. A third type of REIT, called the private REIT or private-placement REIT, also does not trade on an exchange. Private REITs generally are exempt from SEC registration and, thus, do not follow disclosure rules.
Investment in any REIT has risks, which should be evaluated using the company’s prospectus, annual report, and other materials. As always, the investor’s risk tolerance, need for income, and net worth need to be taken into account. REITs depend on borrowed capital to varying extents. Rely