Updated October 6 at 6:06pm

REITs are part of most portfolios

By Rebecca Keister
PBN Staff Writer

Do you have a REIT in your portfolio?

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Real Estate

REITs are part of most portfolios


Do you have a REIT in your portfolio?

The answer most likely is yes as Real Estate Investment Trusts, companies that own and often operate income-yielding real estate, often find a place in many investors’ portfolios.

“Almost all of my clients have at least a small percentage in REITS,” said Dan Forbes, owner of Forbes Financial Planning Inc. in Providence. “If you think of a mutual fund that pools money and buys stocks, a REIT is very similar, except it’s pooling money and buying real estate property.”

However, it’s highly unlikely that any REITs in a Rhode Islander’s portfolio are for properties inside the Ocean State as the makeup that makes them a popular investment discounts the state as a hot market.

Karl Sherry, a founding partner of Hayes & Sherry Real Estate Services in Providence, said most REITs are interested in acquiring higher-end properties, in the $20 million and up value range.

Rhode Island, of course, has a limited supply of such properties.

“Rhode Island is a tertiary market,” Sherry said. “There are only so many buildings here that [REITs] would be interested in.”

REITs were established by Congress in 1960 in order to allow the average investor – including those who today are planning for retirement through Individual Retirement Accounts [IRA] and company-facilitated 401[k] plans – to make investments in large real estate.

To be a REIT, a company must distribute at least 90 percent of its taxable income to shareholders and have at least 75 percent of its income tied to real estate investment. REITs cannot pass tax losses through to investors.

A REIT investment works similarly to buying stocks of corporations. REIT investors purchase, for instance through mutual funds, a portion of a REIT and earn a share of the REIT’s income.

As of Jan. 1, 2012, according to the national association, there were 166 REITs registered with the Securities and Exchange Commission in the United States that trade on one of the major stock exchanges. Those REITs had a combined equity market capitalization of $579 billion.

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