Make Room for REITs in Your Portfolio

apartment reits in diversified real estate & income portfolio sheaff brock investment advisors

Make Room for REITs in Your Portfolio

Real estate investment trusts, or REITs, are companies that own, and in most cases manage, income-producing real estate. In today’s environment, REITs may make a lot of sense for investors seeking diversification and yield.

Perhaps you’ve avoided owning income-producing real estate because you’re uncomfortable losing liquidity. Since REITs trade on major exchanges like stocks, they offer the potential for a more liquid stake in real estate. In fact, as Investopedia explains, the three primary advantages of REITs include:

  • active professional management
  • transparency
  • liquidity

According to Sheaff Brock Managing Director Ron Brock, REITs are defensive on both “flanks”: they tend to be non-correlated with the stock market, yet are less interest-rate sensitive than bonds.

Are REITs new? Hardly. Real Estate Investment Trusts have existed in the U.S. for almost sixty years. Most of the early REIT offerings consisted of office buildings leased to tenants. Because REITs are required by law to maintain dividend payout ratios of at least 90%, they can be attractive to income-seeking investors.

You may be hard-put to find similarities between the new Sheaff Brock Real Estate Income & Growth portfolio and those early investment trusts made available to your predecessors. Notably, the newest Sheaff Brock portfolio will include fifteen to twenty different REITs, spread among four or five different real estate sectors.

While one advantage of REITs is their dividend payout to shareholders with an average long-term (15-year) dividend yield well more than the yield of the S&P 500 Index, Morningstar explains, a second advantage is simplified tax treatment, especially as compared with direct ownership of income-producing real estate. Each year REITs send Form 1099-DIV forms to shareholders, detailing the proportion of ordinary income, capital gains, and return of capital.

Studies have shown that adding REITs to a diversified investment portfolio increases returns and reduces risk, Morningstar also notes. With its portfolio spread of medical properties, apartments, storage facilities, and more, you might say the Sheaff Brock Real Estate Income & Growth portfolio is designed to give portfolio diversification a whole new meaning!

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