Remember when Real Estate Investment Trusts (REITs) were so popular? It was the mid-1990s, and real estate was enjoying a big increase in prices and rent. But in 1998, tech and Internet stocks knocked REITs off the hot stock list.
Now, thanks in part to the tech downfall and an overall slowing economy, REITs once again look good to investors. “People call REITs the anti-tech, but I’d call them the anti-market,” says Lee Schalop, real estate analyst for Banc of America Securities. That is, REITs’ big dividends and relatively low growth offer the opposite benefits of general stocks. And REITs aren’t the high-spec, sexy option once perceived. “If you’re looking for safety and security right now, with an average yield of about 7 percent and growth of 5 percent, REITs are a nice place to be,” Schalop adds.
Even with continued uncertainty in the market, investors recommend dedicating a part of your portfolio to real estate. Manuel Pyles, financial analyst at A.G. Edwards, says, “For the vast majority, the more-than-attractive dividends are secure. We’re not worried about oversupply, like the problem in the late ’80s.” Some tips for the interested:
- Check up on the REIT’s management record. Real estate is one place where it’s especially good to have professional management.
- If you have a diverse portfolio, dedicate about 5 to 10 percent of total holdings to REITs.
- Try to find REITs that have their larg-est holdings in market sectors that are currently steady, such as office and warehouse properties.
- Don’t forget that REIT dividends are taxed as regular income; for high-income taxpayers, the stocks are best held in a retirement account.
Comprehensive how-to and definitions, plus listings of REIT-invested mutual funds, at www.reitnet.com or check out the National Association of Real Estate Investment Trusts Web site, www.nareit.org