High-Yielding REITs
Desperate for income, investors can't get enough high-yielding REITs and Wall Street is rushing to supply them. Companies are lining up to convert into REITs, a step that requires approval from the Internal Revenue Service.
Prisons, cell towers and golf courses were turned into REITs in the late 1990s, Mr. Westphal says with "pretty dreadful" results that in some cases produced losses of 90% or more.
So the market is changing and investors should temper their expectations accordingly.
While owning REITs is a good idea, panic buying isn't. Many investors are dumping money-market funds or bond funds and replacing them with higher-yielding REITs, says Morningstar analyst MichaelRawson. But REITs aren't bonds; the FTSE NAREIT Equity REITs Index, a benchmark of more than 120 of these stocks, lost 37.7% in 2008, when U.S. Treasury bonds had a positive 13.7% return.
UPREITS: TAX-DRIVEN CONVERSIONS FOR PROPERTY OWNERS
One of the more under-discussed aspects of the REIT is how it can benefit a seller of real estate. By contributing a property to a REIT you can achieve many of the same benefits associated with a §1031 exchange including deferral of gain recognition not to mention several other potential advantages. For the owner looking to monetize their investment in a tax advantaged manner with the possibility of additional upside this option deserves some additional examination.
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