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!