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REITs: Dividends & Diversification

A Real Estate Investment Trust (“REIT”) is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages.

REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.

Equity 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: 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: Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages.

The primary objectives of REITS are to provide investors with diversification into a different asset class, current income, and the opportunity to own large commercial real estate properties you might not typically be able to afford on your own.

The benefits of REITS include:

  • Wide Range of High-quality Properties
  • High-quality Tenants
  • Varying Lease Terms
  • Diversification – Just as a personal investment portfolio should be diversified to reduce risk, REIT portfolios achieve diversification through
    • The number of tenants who lease properties
    • The number of industries represented by tenants
    • The length of lease terms signed by tenants
    • The geographic locations of properties throughout the United States

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REITS could be appealing investments for investors seeking

  • Attractive Current Income
  • Capital Preservation/Appreciation
  • Tax Efficient Income
  • Diversification
  • Safety From Stock Market

REITs are subject to various risks such as illiquidity and property devaluation based on adverse economic and real estate market conditions and may not be suitable for all investors.

You should consider a REIT’s investment objectives, risks, and charges and expenses carefully before investing. Contact your BestVest Financial Professional to request a prospectus, which contains this and other information about a specific REIT. Read it carefully before you invest.