The Leading Business Education Network for Doctors, Financial Advisors and Health Industry Consultants

REITs – The Margarine of Real Estate Investing

By Dr. Dennis Bethel MD

By Dr. David E. Marcinko MBA CMP®

SPONSOR: http://www.CertifiedMedicalPlanner.org

Just like real estate, butter has been around for thousands of years.  Sometime in the 1800’s someone decided that there was a need for something that looked like butter, tasted similar to butter, but wasn’t butter.  Along came margarine.  Real estate investment trusts (REITs) are the margarine of the real estate investing world.

NAREIT, the National Association of Real Estate Investment Trusts, answers the question

“What is a REIT?” in the following way:

“A REIT, or Real Estate Investment Trust, is a type of real estate company modeled after mutual funds.  REITs were created by Congress in 1960 to give all Americans – not just the affluent – the opportunity to invest in income producing real estate in a manner similar to how many Americans invest in stocks and bonds through mutual funds.  Income-producing real estate refers to land and the improvements on it – such as apartments, offices or hotels.  REITs may invest in the properties themselves, generating income through the collection of rent or they may invest in mortgages or mortgage securities tied to the properties, helping to finance the properties and generating interest income.”

While REITs typically own real estate, investors in REITs do not.  REITs are paper assets that represent interest in a company that owns and operates income producing properties.  In essence they are real estate flavored stock.  As such, REITs are generally highly correlated with the stock market.

***

***

TERMINOLOGY

When discussing REITs, you encounter the following terminology – public, private, traded, and non-traded.  Public REITs can be designated as non-traded or traded depending on whether or not they are traded on a stock exchange.

Since traded REITs are traded on the stock exchange, they enjoy a high degree of liquidity just like any other stock.  Unfortunately, traded REITs tend to follow the economic cycles and can closely correlate with the stock market.  This can lead to a higher degree of volatility than what is usually seen with physical real estate.  Additionally, they do not afford the investor the tax-advantages that come with investments in physical real estate.

MORE: https://medicalexecutivepost.com/2017/11/15/on-non-traded-real-estate-investment-trusts-reits/

Private REITs and non-traded public REITs are not traded on an exchange.  These are usually offered to accredited investors through broker-dealer networks.  These REITs are illiquid and generally have high fees.  They have been plagued with transparency issues as well as conflicts of interest.  Valuation of this stock is difficult and can be misleading to the investor.  Due diligence is very important as the quality of non-traded REITs can vary widely.

MORE: https://medicalexecutivepost.com/2014/06/13/why-i-hate-non-publicly-traded-reits/

ASSESSMENT: Your thoughts and comments are appreciated.

ORDER TEXTBOOK: https://www.routledge.com/Risk-Management-Liability-Insurance-and-Asset-Protection-Strategies-for/Marcinko-Hetico/p/book/9781498725989

ORDER TEXTBOOK: https://www.routledge.com/Comprehensive-Financial-Planning-Strategies-for-Doctors-and-Advisors-Best/Marcinko-Hetico/p/book/9781482240283

INVITE DR. MARCINKO: https://medicalexecutivepost.com/dr-david-marcinkos-

THANK YOU

***

Filed under: CMP Program, Experts Invited, Financial Planning, Glossary Terms, Investing, Touring with Marcinko | Tagged: Certified Medical Planner™, CMP, David Edward Marcinko, Dennis Bethel, NAREIT, National Association of Real Estate Investment Trusts, Real Estate Investment Trust, REIT, REITS |