KnowHow® News

May 2013: In the Know

REITs: Learn More About Real Estate Investment Trusts Before You Trade

If you're looking to incorporate real estate into your portfolio, it doesn't necessarily mean you have to hit the road house hunting.

A Real Estate Investment Trust is a publicly traded security representing holdings in real estate investments. A REIT manages a portfolio of investments in order to earn a profit for investors. Similar to stocks investors, investors who own shares of a REIT buy and sell REITs on the secondary markets and also pay commissions. REITS allow you to invest directly in real estate through either properties or mortgages. Before determining if they're a fit for your strategy, it may be helpful to dive in to some of the many features of a REIT.

Features of REITs

  • Individuals who otherwise would not have the means to invest in real estate may have the ability to do so with REITs.
  • REITs involve risks and are subject to market volatility. Please research each investment carefully. You should determine your risk tolerance before you make your first move.
  • Unlike dividends paid by domestic stocks, the 70% corporate dividend exclusions does not apply to REITs.
  • Dividends paid by REITs are not qualified dividends, which means they are taxed at the individual investor's ordinary income tax rate.
  • REITs may potentially provide long-term capital gain distributions, which are currently taxed.
  • REITs may distribute dividends in the form of equity rather than cash.
  • REITs are relatively liquid compared to other real estate investments. Rather than having to sell a property, investors only need to sell their shares to liquefy their investment.
  • REITs still do own physical property, and, according to Morningstar®, property taxes can take up as much as 25% of total operating expenses.
  • Although real estate values tend to increase over time, there can be periods where they will stagnate or decrease. The value of the shares in a REIT will fluctuate along with the value of the underlying properties and the amount of rental income received. Investors who need to sell their shares may not recover their full investment.

Researching REITs
You can find information about REITs using many of the same tools on Scottrade that you would use to research other investment possibilities.

Search by Symbol
Type the symbol of a particular REIT into any of Scottrade's search bars.

Search What's Available
To find a list of REITs and more information about each one, simply:

  1. Log in to your account.
  2. Click on the Quotes & Research tab.
  3. Choose Sectors & Industries from the left-hand navigation bar under Markets.
  4. Click on Services.
  5. Click on Real Estate Operations.
  6. Choose the REIT you would like to research.

Before you choose to invest in a REIT, understanding them from a tax perspective may be beneficial. The rules can be very complex, and it's to your advantage to understand the tax implications of your investment.

The material provided on this site is for informational purposes only. Please consult your tax or legal advisor(s) for questions concerning your personal tax or financial situation.

REITs involve unique risks and are subject to stock market volatility. There is no guarantee regarding future performance and upon the sale or distribution of the REIT's assets, stockholders may receive less than their initial investment. Distributions from REITs may be paid from offering proceeds, the sale of assets or borrowed funds. There are fees associated with investments in a REIT and those fees may affect the overall performance of the investment. Please research each investment carefully.

The information and content provided in the Scottrade® Knowledge Center is for informational and/or educational purposes only. The information presented or discussed is not, and should not be considered, a recommendation or an offer of, or solicitation of an offer by, Scottrade or its affiliates to buy, sell or hold any security or other financial product or an endorsement or affirmation of any specific investment strategy. You are fully responsible for your investment decisions. Your choice to engage in a particular investment or investment strategy should be based solely on your own research and evaluation of the risks involved, your financial circumstances and your investment objectives. Scottrade, Inc. and its affiliates are not offering or providing, and will not offer or provide, any advice, opinion or recommendation of the suitability, value or profitability of any particular investment or investment strategy.