Real Estate Investment Trusts and you

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Q. What is a Real Estate Investment Trust?
— Investor

A. A Real Estate Investment Trust, also called a REIT, is one way to diversify your portfolio.

A REIT is a security that invests in real estate through property or mortgages and often trades on major exchanges like a stock, said Dean Shah, a certified financial planner with Stonegate Wealth Management in Oakland.

“They typically lease space — hospitals, office buildings, warehouses, shopping malls, apartment complexes, etc. — and pass on collected rent payments to investors through dividends,” Shah said. “REITs provide diversification, a liquid stake in real estate and typically offer high dividend yields.”

Shah said there are three main kinds of REITs.

Equity REITs are the most common. They invest in and own the properties within the trust, Shah said.

Then there are Mortgage REITs, which invest in and own mortgages to properties.

“Money is loaned to real estate owners or existing mortgages can be purchased,” Shah said. “Earnings are derived from the interest earned on the loan, which makes this type of REIT sensitive to changes in interest rates.”

And finally, there are Hybrid REITs, which invest in both mortgages and properties.

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