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Income Investing Through REITs

Everyone is afraid to venture into the real estate market now with housing prices down nationwide. Just because the real estate market is in the dumps doesn’t mean that you can’t make money investing in real estate. You don’t have to spend hundreds of thousands or millions of dollars to invest in real estate properties yourself. You can own a piece of a residential or commercial property for just a few bucks. The way to do this is by investing in a real estate investment trust.

What is a REIT? Three Ways To Add To Your Investment Portfolio

REIT’s are known as real estate investment trusts. These are corporations that exist for the primary purpose of investing in real estate. Real estate investment trusts can invest in residential properties by buying residential mortgages. They can also buy commercial properties like office buildings, shopping centers, and malls. A real estate investment trust can be publicly or privately held.

Income investors absolutely love REIT’s. The best part about REIT’s is that they are required by law to pay out 90% of earnings to shareholders in the form of distributions. This is typically via quarterly dividends or annual distributions. The income from REIT’s can add up to a nice amount of money if you pick a high yielder.

Here are a 3 ways that you can start adding more income to your investment portfolio.

Commercial Property Owner REIT’s

Another way to get exposure to the real estate market is by buying commercial property REIT’s like the MaceRich Company (MCE). The MaceRich Company is involved in the acquisition, ownership, development, management, and leasing of regional and community shopping centers. The company owns 71 different regional malls and has been in existence for 57 years. MaceRich Company has a generous 4.20% yield. It’s important to note that commercial REIT’s are riskier investments because they are directly tied to the strength of the economy.

Index REIT Exchange Traded Funds

If you don’t want to go to the trouble of picking which companies will perform the best, then just pick up a REIT index exchange traded fund. Funds like the Vanguard REIT ETF (VNQ) seek to replicate the total return of the U.S. REIT Index. The Vanguard REIT ETF has performed rather well this year earning a 22% for investors and a yield of 3.5%. This way you can get the total return of the REIT index without being worried about an individual REIT security.

Mortgage Backed Security REIT’s

If you want to invest in residential mortgages then take a look at companies like Hatteras Financial Corporation (HTS). This is a riskier play than buying an index ETF but has a substantially higher yield. The Hatteras real estate investment trust is paying out $4 per share which equates to a 14% yield. This company invests in mortgage backed securities that are guaranteed by the federal government. Most of its securities are backed by Fannie Mae and Freddie Mac.

As you can see, there are several different ways that you add a little real estate to your portfolio. You can earn higher yields than traditional stocks pay and add some diversification to your portfolio.