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How do I Choose the Best Equity REIT?

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  • Written By: A. Leverkuhn
  • Edited By: Andrew Jones
  • Last Modified Date: 14 September 2016
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Seeking out the best equity REITs is a little easier to do than with other types of Real Estate Investment Trusts. The reason is that these funds only invest in actual real estate holdings, where other REITs can get involved in dealing with mortgages or mortgage backed securities. One main thing that investors look at is what kind of properties the equity REIT invests in. Some equity REITs, like residential REITs or retail or commercial REITs, focus specifically on a certain kind of property. Others include a kind of “grab bag” that contributes to the overall goal of real estate diversification.

An equity REIT is a specific kind of financial product that allows for investing in a range of real estate properties. The REIT is a legal structure for a kind of “fund” that manages investments in real estate, passing gains on to a group of investors or shareholders. The REIT is required by law to pass on the majority of its income in the form of dividends.

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Those looking for an equity REIT may choose look at the yields first. Yield is how much the fund is offering in terms of annual dividends. Some experts recommend using “screener” tools to look for the yields that you want from an equity REIT. Some investors also look at items like FFO (funds from operations) to see more on the strategy of fund managers, and whether the leadership believes in keeping cash on hand, or in limiting debt.

Anyone who wants to get involved in equity REIT investment will also want to look at the overall economic context or big picture. Pros refer to the process of evaluating an REIT or other fund as “due diligence.” Brokers, traders, and others informally call this “doing your homework;” due diligence means relying on your own research into a fund or product, rather than just accepting what someone else says about it. Investors may want to look into the portfolio of a specific equity REIT and see how those kinds of properties are doing in a current market, and whether occupancy rates, etc. are likely to remain the same in the long term.

Investors who have experience with equity REITs sometimes like to make predictions about dividend growth. The growth of dividends will determine what an REIT is likely to pay out in future years. Although REITs are like other financial products, and rather opaque when it comes to long term analysis, some good educated opinions will help investors identify the best equity REITs to add to a diversified financial portfolio.

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