Real estate investment trusts, which are known as REITs, and stocks are both types of investment vehicles. REIT investors hold shares in a trust that owns and manages a collection of real estate properties or mortgages, while stock investors purchase shares in the ownership of a public company.
REITs and stocks both usually can be purchased on stock exchanges through a registered broker. Most REITs and stocks have publicly available shares, and you can buy and sell them when you want. Publicly traded REITs and stocks are both registered with the Securities and Exchange Commission and subject to its oversight. The prices of both REITs and stocks can rise or fall, leading to growth or decline in wealth for shareholders.
Sectors and Scope
REITs and stocks each are divided into sectors, though the REIT field ultimately is much narrower. The variety of stocks is immense, ranging from small companies to large ones and covering all manner of business sectors, including consumer discretionary, consumer staples, energy, financial, health care, industrial, information technology, materials, telecommunication services and utilities. REITs tend to specialize in a particular type of commercial real estate, purchasing and holding properties in a single sector. This includes real estate areas such as retail, office, residential, health care and industrial.
Both REITs and stocks can provide a steady stream of income for investors, but REITs focus more on that aspect than stocks do. REIT investors receive income from the revenue that the commercial properties in the REIT produce, such as through rent or lease payments. These payments go to investors in the form of dividends. Similarly, stock shareholders also receive income from their investments through dividends, which are made from a company's profits. However, some stocks do not pay dividends, while REITs have strict guidelines on dividends. At least 90 percent of a REIT's taxable income must be distributed in dividends.
Risk and Growth
Stocks and REITs both can serve as long-term, "buy and hold" investments that produce gradual growth over many years. The characteristics of stocks vary greatly from one to the next, and the same is true of REITs. As with stocks, some REITs are high-risk investments that seek ambitious gains, while others are low-risk picks designed for modest, steady returns. REITs enjoy the most success when property values are increasing, while a broad number of economic factors can influence general trends in stock prices.
- Securities and Exchange Commission: Real Estate Investment Trusts
- Bloomberg Businessweek: Sector Overview
- Kiplinger: Buy REITs for Growth
- Making the Most of Your Money; Jane Bryant Quinn; 2009
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