How to Invest in REITS

By investing in Real Estate Investment Trusts (REITs), you can take an ownership stake in the real-estate market without investing directly in properties.

Instructions

Difficulty: Moderately challenging

1. Familiarize yourself with real-estate investment trusts - companies that buy and usually manage apartment complexes, office buildings, shopping centers and warehouses, and sells shares to the public.
2. Research publicly traded REITs. About 200 REITs are traded on major stock exchanges, and you can learn about them by reading annual reports and other public documents.
3. Focus on REITs that are at least three years old.
4. Look for financial strength. A healthy REIT's debt usually will be less than 50 percent of its market capitalization (the number of all outstanding shares multiplied by the price per share).
5. Ensure the REIT's revenue comes largely from operations and not from the sale of properties or from borrowed funds.
6. Look for REITs that have shown steady growth in dividends over several years.
7. Ensure executives and managers of the REIT own a substantial amount of stock in the REIT.
8. Concentrate on REITs that have returned at least 12 percent annually to shareholders for the past few years. (Total returns are dividends plus appreciation in the stock price.)
9. Buy stocks through a discount brokerage. That will save you money on commissions.
10. Diversify. Different REITs focus on different aspects of the real-estate industry. Don't put all your eggs in one basket.

Tips & Warnings

• Check out annual reports, quarterly reports, proxy statements and other documents filed by REITs at Free Edgar (see Related Sites).
• If for several quarters in a row, a large part of net income comes from the sale of the company's property, not from leases and management fees, watch out. The REIT might be in trouble.