Series 66: 3.8.1.1.1. REIT Suitability

Taken from our Series 66 Online Guide

3.8.1.1.1. REIT Suitability

REITs provide a way for individual investors to earn income from commercial real estate. 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 inflation because rents tend to rise during inflationary periods. Returns on listed REITs historically have had a lower correlation with the returns of other equities and fixed-income investments. (But it is important to point out that recently REITs have been somewhat correlated with the stock market.) Thus, investing in REITs can add diversity to a portfolio. Additionally, REITs have shown a reliable dividend yield through a range of market conditions.

Shares of publicly traded REITs are sold on a stock exchange or the OTC market. Non-traded REITs, or non-exchange-traded REITs, also register with the SEC, but shares can only be purchased through a specialized broker. A third type of REIT, called a private REIT or private-placement REIT, also does not trade on an exchange. Private REITs generally are exempt from SEC registration and therefore do not follow disclosure rules.

A REIT 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 should be taken into account before investing in a REIT. Because REITs depend on borrowed capi

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