How to Buy Real Estate Investment Trusts
David R. Francis, writer of The Christian Science Monitor, The Christian Science Monitor
It "makes some sense" for any diversified investment portfolio to have some money "tied to real estate cash flows," says Steven Wechsler.
Mr. Wechsler is hardly an unbiased source. He is president of the National Association of Real Estate Investment Trusts (NAREIT), the Washington trade organization for the nation's 211 REITs.
But many brokerage-house analysts agree. And they suspect REIT shares will recover this year after a sharp price "correction" last year when legislation moved through Congress that removed special tax advantages for a few REITs, including Starwood Hotels & Resorts. Many investors thought the whole industry would be damaged, says Paul Reeder, an expert at SNL Securities, an information firm. There was "confusion." Over time, REIT shares have proved to be a conservative, solid investment. Their compound annual return has been 10.26 percent in the past three years; 8.82 percent over 10 years, and 12.25 percent over 20 years, according to NAREIT. So how does one invest in REITs? "Mutual funds might be the way to go for most investors, rather than through individual stocks," says Mr. Reeder. That's because mutual funds provide investors with a diversified REIT investment. A fund will likely have some 30 or so different REIT stocks in its portfolio. There are 46 REIT fund managers listed with telephone numbers on the industry's Web site: www.nareit.com. Mutual-fund researchers at Morningstar Inc. (www.morningstar.net) monitor the performance of more than 80 REIT funds. Most major mutual-fund management firms include a fund that invests in REITs. Brokers also will sell you REIT mutual funds, often those with a sales charge attached that they will share with their firm. You can also invest directly in the shares of an individual REIT, but that requires studying the characteristics and performance of a REIT stock. …