You may have noticed real estate funds as part of the asset mix in some of your retirement accounts. Real estate investment trusts (REITs), are securities that sell like stock on the major exchanges and invest in real estate directly, either through properties or mortgages. A REIT mutual fund owns numerous publicly traded REITs. Equity REITs invest in and own properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties’ rents. Mortgage REITs deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans. Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages.
If you don’t know a lot about these investments you are not alone. Although REITS date back to the 1960’s they have only matured as common investment vehicles in the 1990’s. The attached article goes into the advantages of holding REITs – such as diversification, high yields compared to fixed income and a highly liquid method of investing in real estate.