Real estate investment trusts (REITs) may present a compelling investment option in today’s economic and market environment.
Despite the dismal state of the U.S. real estate market, many REITs have performed well recently.
Housing prices were down again in the first quarter of 2011, according to the S&P/Case-Shiller national home price index. The index shows that housing prices decreased 5.1% in the first three months of 2011, compared to the same period in 2010. Prices were also down 32.7% from their peak set five years ago.
However, as of May 31, U.S. REITs were up 14.09%, according to the MSCI U.S. REIT Index.
Investors purchased nearly $22 billion in new REIT shares in the first five months of 2011, almost triple the amount they purchased during the same period the year before, according to The Wall Street Journal.
A REIT is a company that owns and, in most cases, operates income-producing real estate.
The shares of REITs are traded on major stock exchanges.
Each year, REITS distribute at least 90% of their taxable income to shareholders in the form of dividends.
Of course, REITs aren’t for everyone. There are special risks associated with investments in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions.
However, investors may be able to mitigate these risks by seeking REITs in certain categories, such as the health care sector, which may benefit from growing demand as baby boomers age and the population enjoys a longer life span. Your financial advisor can help you determine if REITs are appropriate for you, given your individual financial circumstances and goals.
Index returns assume reinvestment of all distributions and do not reflect fees or expenses. It is not possible to invest directly in an index.