Are REITS gaining traction for the smaller real estate investor?

Real Estate Investments Trusts invest in properties that produce income and pass on the profits to investors in the form of dividends.  Read more on this article in the Daily Record on why more everyday investors are investing in REITS, which can offer upside income potential with a much smaller investment.

Real estate investors don’t have to own property to make a buck. They can invest in stocks of real estate investment trusts, which own and sometimes operate commercial, industrial and retail properties.

In good times, it’s kind of like enjoying the milk, without having to buy the cow. You can pocket the gains when REIT stocks rise, without the burden of a mortgage or property upkeep.

More important, investors in REITs and real estate mutual funds can expect steady dividend payouts — the trickle-down of operating income generated by REIT properties.

Lately, the appeal of investing in real estate without physically owning the property has been strong. Home sales plummeted over the summer after homebuyer tax incentives expired. Lending standards remain tight, foreclosures high.

Although housing has struggled, real estate funds have gained an average 31 percent during the past 12 months. That’s the biggest rise among the 21 domestic mutual fund categories that Morningstar tracks, and twice as much as the second-biggest gainer, funds specializing in industrial stocks.

Real estate funds are riding the robust gains among the stocks they buy. Yet they’re short of a full recovery from the housing market collapse — a bust that also spread to the commercial and industrial real estate markets, where REITs are far bigger players. Over the last three years real estate funds have lost almost 5 percent a year, compared with an average loss of 8 percent for the Standard & Poor’s 500 stock index.

Still, investors have taken notice of the stocks’ partial turnaround, adding nearly $2.9 billion into domestic and global REIT funds and exchange-traded funds the past 12 months. It’s more than just return-chasing. Investors, especially retirees, are nervous about stock volatility, and eager to latch onto anything that might offer steady dividend income. Read the rest of this entry »