REIT

[Anthony Palma]

If i put my money into a real estate investment trusts, what happens? Do I receive passive income?

[Kevin Vandenboss]

I own shares in a handful of REITs and do pretty well with them. I believe I have an advantage on them over the typical stock investor that's just using them to diversify their portfolio. 

This advantage is my knowledge and experience in the types of real estate the REIT is investing in. Instead of simply looking at the numbers, I look at the properties and markets they're investing in, the types of tenants, remaining lease terms, etc. I look at them more like real estate investments than stocks.

I mainly buy REITs based on 3 things:

• The price of the stock compared to my estimate of the value of their portfolio. I look for underpriced deals.
• My opinions on the future of the asset types they invest in
• Dividend yield. I buy for the dividend income

I very rarely buy any with a dividend yield less than 5%, unless I'm confident the price and value will go up enough that the cashflow I receive on it will be 7%+ based on what I paid. Most of mine are 7%+. 

I'm usually buying ones that other investors don't see the opportunity in, so the dividend yields are higher. 

So, to answer your question, if you buy high dividend REITs with portfolios you like, you will get income. Mine isn't completely passive because I spend a little time each week looking for press releases from my REITs, as well as others in my watch list. 

My favorite thing about public REITs however, is that they're liquid. When a good investment opportunity pops up that I need cash for, I can sell off however much I need, and have the cash 2 days later. If I'm feeling really confident about the REIT I sold and want to keep my shares, I can just buy it back real quick with margin. (Risky)

If you're looking at REITs, one of my favorites right now is WPC. Their price is down, while their value is up. Their income has grown every year, and their dividends have grown every year. You're likely to see a return from the price increase, plus the yield on your cost will go up every year.