When interest rates are low, some investors search for investments offering attractive dividends. That search often leads to real estate investment trusts or REITs.

A REIT is a company that earns money through acquiring and then renting or leasing property. In 1960, President Eisenhower signed into law the REIT Title Act with the goal of allowing smaller investors that may not have the capital to otherwise invest in income-producing real estate to purchase shares of REITs.

Many REITs are registered with the SEC and trade on stock exchanges. However, there are REITs that are registered with the SEC but are not publicly traded. These are known as non-traded REITs. One of the features of a REIT is that it must distribute 90% of their taxable income to investors in the form of dividends. Another feature is REITs add a real estate element to a portfolio, which may offer a level of diversification.

REITs fall into one of three categories: equity REITs, mortgage REITs, or hybrid REITs. Equity REITs own income-producing real estates like offices, shopping centers, and hotels. Mortgage REITs provide money to real estate owners in the form of mortgages or other types of loans. Hybrid REITs use a combination of strategies.

Are REITs a good choice for your investment portfolio?

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