The Lazy Man’s Way To Real Estate Investing

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American investors can thank an Australian investment vehicle for letting them invest in real estate the lazy way. Officially born in 1971 in the land down under it was, and still is, known as the Real Estate Investment Trust (REIT).

When I was a stock broker, some of my clients fell in love with this income producing product because they quite often paid higher yields than stocks or bonds. They also were and still are highly liquid.

The REITs with sound properties in their portfolio not only paid like clockwork but paid well. The same holds true today even though the market has been whacked around a bit.

I am not advocating anyone or everyone become a REIT investor. While I still like them, I prefer to slog around neighborhoods looking at potential inventory and doing the attendant research. My son on the other hand is the true lazy American. He will let someone else do the work for him. REITs are perfect for him.

For those who may not be familiar with real estate investment trusts, they are simply entities that invest in different kinds of real estate or real estate related assets, including shopping centers, office buildings, hotels, and mortgages secured by real estate. You buy shares in them through your broker.

There are three types and all three have a level of risk so it is important to understand your risk parameters. Chances are excellent if you already invest in real estate, you have a handle on your risk taking level.

According to the SEC, the three types of REITs are:

1) Equity REITS, the most common type of REIT, invest in or own real estate and make money for investors from the rents they collect;
2) Mortgage REITS lend money to owners and developers or invest in financial instruments secured by mortgages on real estate; and
3) Hybrid REITS are a combination of equity and mortgage REITS.

You can visit the SEC website for more information. Another good source of information is the National Association of Real Estate Investment Trusts. Both provide information that should help you make an informed decision. Due diligence is extremely important in this arena as it is in any other investment.

By the way, some REITs offer a dividend reinvestment plan (DRIP). This means you can let the dividends buy more shares. If you have a REIT that is doing well, you now have the benefit of compounding working for you.

REITs may not be for everybody but they may be for you. Happy investing!

Note: Image Copyright © Globe Business Publishing Ltd 2008 – Globe Law and BusinessReal Estate Investment Trusts: A Global Analysis

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14 Comments

  1. Tom Koziol on

    Mark,

    Thanks for the resource. I looked it over and believe anyone interested in REITs would be well served by reading it.

    Tom

  2. In addition to the REIT shares you can buy from your stock broker, there are some excellent private REITs that offer shares to qualified investors. They are harder to find and have high minimums but they might be worth seeking out.
    I’m not recommending any particular REIT, do your homework or consult a professional.
    Good Luck
    Glenn

  3. Hi Glenn,

    You are 100% right on with the key being “qualified” investor. The returns are still quite high, on a comparative basis, so they are worth a look see.

  4. Gregory – You are more than welcome. I hope you find something you like. I had planned on putting up a page on various investments on my senior citizen resource oriented site but can’t seem to squeeze out the time. Regardless, thanks for the comment.

  5. I am civil engineer and think i have enough knowledge about real estate investment trusts. But I don’t have money to do it.If I get any investor I will try to do it.

  6. BMX – Being a civil engineer means you have an education. An education usually means you can read. If you can read, you can understand REITs. The best reading you can do on any REIT is everything in their prospectus plus the “scoop” on it on the various investment sites.

  7. Tom, great post about REIT. I’m curious to see if you’re still investing in REIT given the current market? I’m a realtor in Las Vegas, and I’m seeing so much potential in our foreclosures right now that I would recommend a client consider investing in properties than REITs. What are your thoughts? Keep up the great info.
    Felipe Crook
    Prudential Americana Group Realtors
    Las Vegas

  8. Felipe,

    No, I am not investing in REITs at the present time. I am into short sale foreclosure properties. More work but a bigger bang for the buck.

    Good luck to you down there in LV. Up here in Reno we have a ton of foreclosures which, I know, doesn’t match your numbers.

    Tom

  9. “Historically, real estate has been viewed as an attractive asset class for its
    diversification benefits and stable cash flows.”
    would it be still be easy to do this in today’s enviroment?for the average person? including the banks? at least in NZ it’s a buyer’s market because the prices are falling quite a bit in some places

  10. Tom, thanks for the good post. REITs as the “lazy mans’ way to real estate investing.” Very appealing option I have not explored yet!

    Sounds like the equivalent of investing in gold and silver via previous metal ETFS–saving a trip out in town.

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