REITs Remain a Bright Spot in Cooling Market

Real estate mutual funds, which invest mainly in REITS, have climbed an average 139 percent, compared with 21 percent for the average stock fund.
By: John Waggoner: REALTOR® Magazine Online
Is it too late to invest in real estate investment trusts?

REITs have done spectacularly in the past five years. Real estate mutual funds, which invest mainly in REITS, have climbed an average 139 percent, compared with 21 percent for the average stock fund and 10 percent for the Standard & Poor’s 500 Stock Index.

If you’re hoping for that kind of performance during the next five years, you’re likely to be disappointed, says Samuel Lieber, manager of the Alpine U.S. Real Estate fund.

REITs, which invest in commercial real estate, generally pay excellent dividends — in part because they are required by law to pass along to their investors nearly all their income, after expenses. Dividends combined with even modest price appreciation should mean a 7 percent to 8 percent annual return — at minimum.

Can things go wrong? Of course. High borrowing costs and soaring yields on Treasuries can slow growth in the commercial real estate market and put a crimp in REIT returns, Lieber notes.