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Welcome to Investing for Beginners podcast, I’m David Ahern, and Andrew Sather’s here tonight. We’re going to talk about REITs. We have episode 33 tonight, and we’re going to talk a little bit about REITs.
What we will learn today:
- What a REIT is
- How to value them, hint: the same way as any other stock
- How a REIT can help your portfolio
- REITs can give you exposure to the real estate asset class
- How to treat dividends in REITs from a tax perspective
- Whether or not they are a good investment for you.
We had a listener comment on our podcast earlier a couple of episodes ago, and we wanted to go ahead and answer his question and speaking of answering this question. Andrew has his comment up, and he wanted to go ahead and get us started.
Andrew: yeah so this is from Bart. He says this was a comment he left on the blog on one of the episodes.
He says “guys love the show. The quick question whether your thoughts on REITs, they seem to pay high dividends but is there a catch?”
So maybe we should start off and introduce what a is REIT. Its REIT stands for Real Estate Investment Trust; it is basically like it says in the title it’s a trust and it usually holds a portfolio of real estate different properties. And there are different categories that you can see when it comes to these.
Some of them will hold commercial real estate so think the malls and office buildings and the real estate that’s attached to those. Some of them do residential real estate, there are other types which I don’t know the nitty-gritty on all of them. But there are quite a few different industries around REITs. And so basically they hold these basket of real estate properties, and they hold them and their income-producing properties.
Then what the owners will do is they’ll reallocate those whatever income comes from the trust then gets distributed to shareholders.
So it works like a stock as in you can buy it in the stock market on an exchange. You can see that price go up or down you get paid a dividend based on what the earnings are, and so it has a lot of similarities to stocks, but it also has some technicalities which I think we can get into as.
Dave: well yeah they’re they’re interesting, they’re different beasts for sure. They’re you know the valuations of them are a little different than other regular stocks. Just because of the way that they’re set up.
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