Which is the safest reit to invest in?

Realty Income, AvalonBay and Prologis fall into that category within the REIT sector, as well as in their respective real estate niches. In good times and bad, these REITs are likely to have the access to capital needed to outperform at the corporate level.

Which is the safest reit to invest in?

Realty Income, AvalonBay and Prologis fall into that category within the REIT sector, as well as in their respective real estate niches. In good times and bad, these REITs are likely to have the access to capital needed to outperform at the corporate level. Amanda Bellucco-Chatham is an editor, writer and fact-checker with years of experience researching personal finance topics. Her specialties include general financial planning, career development, lending, retirement, tax preparation, and credit.

Approximately 24 percent of REITs' investments are in shopping centres and freestanding shops. This represents the largest investment by type in the United States. Whatever mall you frequent, it is likely to be owned by a REIT. When considering investing in commercial real estate, first look at the retail sector itself.

Is it financially healthy today and what are the prospects for the future? It is important to remember that retail REITs make money from the rents they charge tenants. If retailers have cash flow problems due to low sales, they may delay or even default on those monthly payments, eventually being forced into bankruptcy. At that point, a new tenant has to be found, which is never easy. Therefore, it is crucial that you invest in REITs with the strongest possible anchor tenants.

These include grocery shops and home improvement shops. Once you have made your sector assessment, your focus should turn to the REITs themselves. Like any investment, it is important that they have good earnings, strong balance sheets and as little debt as possible, especially short-term debt. In a poor economy, retail REITs with large cash positions will have the opportunity to buy good real estate at depressed prices.

Better managed companies will take advantage of this. That said, there are long-term concerns for the retail REIT space, as shopping is increasingly moving online, as opposed to the mall model. Space owners have continued to innovate to fill their space with office and other non-retail oriented tenants, but the sub-sector is under pressure. These are REITs that own and operate multi-family rental apartment buildings as well as manufactured housing.

When it comes to investing in this type of REIT, there are several factors to consider before jumping in. For example, the best flat markets tend to be those where housing affordability is low relative to the rest of the country. In places like New York and Los Angeles, the high cost of single-family homes forces more people to rent, which drives up the price that landlords can charge each month. As a result, the largest residential REITs tend to focus on large urban centres.

Generally, when there is a net influx of people into a city, it is because jobs are available and the economy is growing. A declining vacancy rate coupled with rising rents is a sign that demand is improving. As long as the supply of flats in a particular market remains low and demand continues to increase, residential REITs should do well. As with all companies, those with the strongest balance sheets and the most available capital are typically the best performers.

Healthcare REITs will be an interesting sub-sector to watch as Americans age and healthcare costs continue to rise. Healthcare REITs invest in the real estate of hospitals, medical centres, nursing homes and retirement homes. The success of these properties is directly linked to the healthcare system. Most operators of these facilities rely on occupancy rates, Medicare and Medicaid reimbursements, as well as private payments.

As long as healthcare financing is a question mark, so are healthcare REITs. Things to look for in a healthcare REIT include a diversified group of clients, as well as investments in various types of properties. Concentration is good to some extent, but so is risk spreading. Generally, an increase in demand for healthcare services (which should occur with an ageing population) is good for healthcare real estate.

Therefore, in addition to diversification of clients and property types, look for companies with significant healthcare experience, strong balance sheets and high access to low-cost capital. Office REITs invest in office buildings. They receive rental income from tenants who typically have signed long-term leases. I can think of four issues for anyone interested in investing in an office REIT Try to find REITs that invest in economic strongholds.

It is better to own a lot of average buildings in Washington, D.C. Approximately 10 percent of REITs' investments are in mortgages rather than in the real estate itself. The best known, though not necessarily the best, investments are Fannie Mae and Freddie Mac, government-sponsored enterprises that buy mortgages in the secondary market. But the fact that this type of REIT invests in mortgages rather than equities does not mean that it is risk-free.

A rise in interest rates would result in a decline in the book value of mortgage REITs, which would depress the share price. In addition, mortgage REITs raise a considerable amount of their capital through secured and unsecured debt offerings. If interest rates rise, future financing will be more expensive, reducing the value of the loan portfolio. In a low interest rate environment with the prospect of rising interest rates, most mortgage REITs trade at a discount to net asset value per share.

The trick is to find the right one. According to the Securities and Exchange Commission, a REIT must invest at least 75 per cent of its assets in real estate and cash, and derive at least 75 per cent of its gross income from sources such as rent and mortgage interest. REITs have some drawbacks that investors should be aware of, particularly the potential tax liability they may generate. Most REIT dividends do not meet the IRS definition of qualified dividends, which means that above-average dividends offered by REITs are taxed at a higher rate than most other dividends.

REITs do qualify for the 20% deduction, however, most investors will have to pay a large amount of tax on REIT dividends if they hold them in a standard brokerage account. Another potential problem with REITs is their sensitivity to interest rates. Typically, when the Federal Reserve raises interest rates in an attempt to restrain spending, REIT prices fall. In addition, different types of REITs present property-specific risks.

Hotel REITs, for example, tend to perform very poorly in times of economic downturn. Dividends are taxed as ordinary income Risks associated with specific properties Investing in REITs is an excellent way to diversify your portfolio away from traditional stocks and bonds and can be attractive because of strong dividends and long-term capital appreciation. Each type of REIT has its own risks and rewards depending on the state of the economy. Investing in REITs through a REIT ETF is a great way for shareholders to get involved in this sector without having to personally deal with its complexities.

As with any investment, there is always a risk of loss. Publicly traded REITs have a particular risk of losing value when interest rates rise, often sending investment capital into bonds. Investing in certain types of REITs, such as those that invest in hotel properties, is not a great option during an economic downturn. However, investing in other types of real estate, such as healthcare or retail properties, which have longer lease structures and are therefore much less cyclical, is a great way to protect against a recession.

REITs are listed on the stock market, which means they have higher risks similar to equity investments. Real estate prices rise and fall in response to external stimuli, underlying fundamentals and a variety of other market forces. REITs, in turn, will reflect any weakness and mirror the price effects. If you do not want to trade individual REIT securities, it may make a lot of sense to simply buy an ETF or mutual fund that screens and invests in a number of REITs for you.

Real estate investment trusts (REITs) are securities that are often used by those who want to increase the yield on their portfolio. Although REITs often offer lower yields than corporate bonds, only 50 per cent of the typical REIT investor's returns come from income. Real estate investment trusts, or REITs, are often considered defensive stocks because they tend to be stable regardless of the performance of the overall market. They own the underlying real estate, maintain and reinvest in it, and collect rent cheques, all the management tasks associated with owning a property.

Investing in REITs is an excellent way to diversify your portfolio away from traditional stocks and bonds and can be attractive because of their strong dividends and long-term capital appreciation. Congress created real estate investment trusts in 1960 as a way for individual investors to own stakes in large-scale real estate companies, just as they could own stakes in other companies. Instead, it is an externally managed REIT (by Bimini Advisors LLC) that invests in residential mortgage-backed securities (RMBS), either pass-through or agency structured, which are financial instruments that collect cash flow based on residential loans such as mortgages, including subprime mortgages, and home purchase loans. This REIT's portfolio consists of 28 properties comprising 47 million square feet, some 17,800 hotel rooms, 200 restaurants, bars and nightclubs and four championship golf courses.

Instead of buying individual REITs, you can also invest in mutual funds and REIT ETFs for instant diversification at an affordable price. The great thing about REITs, for income investors, is that they are required to distribute 90 percent of their taxable income to shareholders annually in the form of dividends. The federal government made it possible for investors to purchase large-scale commercial real estate projects as early as 1960. With the market entering a seasonally weak period, CNBC's Jim Cramer said Friday that real estate investment trusts are a safe bet.