There are three types of REITs:
Dividend taxation
REITs tend to have above-average dividends and aren't taxed at the corporate level. The downside is that REIT dividends generally don't meet the IRS definition of "qualified dividends," which are taxed at lower rates than ordinary income.
REITs offer investors the benefits of real estate investment along with the ease and advantages of investing in publicly traded stock. REITs have historically provided investors dividend-based income, competitive market performance, transparency, liquidity, inflation protection and portfolio diversification.
Most REITs are traded on major stock exchanges, but there are also public non-listed and private REITs. The two main types of REITs are equity REITs and mortgage REITs, commonly known as mREITs. Equity REITs generate income through the collection of rent on, and from sales of, the properties they own for the long-term.
Non-traded REITs have little liquidity, meaning it's difficult for investors to sell them. Publicly traded REITs have the risk of losing value as interest rates rise, which typically sends investment capital into bonds.
REITs' prospects for 2021? Investors often purchase REITs for their dividends. ... Everything that could go wrong for REITs in 2020 did. This means, if the vaccine is successful and the pandemic subsides in the second-half of 2021, REITs will be undervalued and should have a strong recovery from depressed levels.
Disadvantages of REITs
| Best Value REITs | ||
|---|---|---|
| Price ($) | Market Cap ($B) | |
| Brandywine Realty Trust ( BDN) | 13.26 | 2.3 |
| Equity Commonwealth ( EQC) | 28.59 | 3.5 |
| Kimco Realty Corp. ( KIM) | 19.87 | 8.6 |
Since the start of the modern REIT era in 1991, U.S. REITs have outperformed the S&P 500 by more than 7% on average in late-cycle periods, and by even wider margins in recessions and early recoveries (cover exhibit). ... First, REITs tend to have predictable, lease-based revenues.
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