Real Estate Investment Trusts (REITs) were created by Congress in 1960 to give individuals a way to invest in commercial real estate. REITs have a unique feature in that they avoid taxation as long as they pay out 90% of their income to shareholders in the form of dividends. This is great news for investors since dividends tend to be high.
I think REITs are great for the following reasons:
- You get to invest in real estate without large upfront capital.
- You don’t have to deal with bad tenants or worry about collecting rent.
- You earn regular income from dividends.
- They are easier than buying and selling houses.
- You can increase your portfolio diversification.
My favorite REIT right now is Annaly Capital Management (NLY) which pays an incredible 15.4% dividend yield. All REITs have some risk and can lose value but Annaly is pretty unique because it focuses on government backed securities. Purchasing government backed securities means risk is very low. Falling (or low) interest rates will increase profits but rising interest rates will decrease profits as margins fall. It you feel interest rates will stay low, you may want to consider NLY. If you feel interest rates are headed upward, NLY may not be for you.
As always, do your due diligence and learn more before making any investment decisions.