Is A Real Estate Investment Trust The Best Place For Your Money?
What is a Real Estate Investment Trust, and is it a way for you to participate in the real estate market without being devastated by events like the current IS housing market collapse? A Real Estate Investment Trust, as its name suggests, is an investment in which your money is pooled with that of other investors to benefit from being in the real estate market real estate without your having to assume individual responsibility for the costs of maintaining and insuring any real property. Your money will instead be put into publicly traded corporations whose business is real estate, whether they be developers, shopping mall owners, or industrial park managers.
A Real Estate Investment Trust is very similar to a mutual fund, except that its holdings are restricted to real estate companies. Like those of mutual funds, most of earnings of REITs are paid out in dividends. Will investing in a Real Estate Investment Trust spare you the trauma of sudden market dips? While real estate has long been considered among the most stable of long-term investments, and is almost certain to appreciate over time, it is not immune from ups and downs. The success of your particular REIT investment will be determined by a variety of factors, including the state of the economy in the area where its significant holdings are located, the sector of the public which they serve, and the general health of the real estate market. If, for example, you invested in a REIT which concentrated its funds in companies involved with the booming South Florida condominium construction market in 2005, you might be feeling some serious downside effects now that the real estate speculators have abandoned that market and many construction projects have stopped dead in their tracks. If, on the other hand, your REIT is focused companies which are involved with recent US casino building boom, or with the management of those casinos and the rental of their retail shops and restaurants, your investment could be doing very well indeed. Investing in an REIT whose potential is not closely tied to the economic conditions of the immediate area can be very smart. Casinos, in particular, can attract business from a wide area, and in the case of Las Vegas, from around the globe. You should also look at the past record and future predictions of any Real Estate Investment Trust in which you are considering an investment. The average historical compounded annual return for all REITS in the US from 1986 to 2006, according to the National Association of Real Estate Investment Trusts, was 10.57%. Any REIT manager who promises significantly more than that, especially in the current housing market climate, may be overly optimistic. If you think you'd like to investigate REITs as an investment, and see the current market decline as a buying opportunity, you may find the book "Investing in REITs," by Ralph L. Block very helpful. The author stresses the importance of the REIT's management team because it is their judgment concerning where to place your funds and when to move them that will determine the REIT's success. You should look for comparison table to determine how the managements of the major REITs fared during the market extremes of the past five years, because the degree to which the assets in which they placed their funds appreciated will be a clear reflection of their being able to fit the right strategy to the right investment. |
