Real Estate Investment Trusts | Goldman, Scarlato Penny P.C

Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) may be public or private, and may concern real estate property, mortgages, or both. Public REITs are traded, but private REITs cannot be traded and are sold through broker dealers. Equity REITs involve properties owned and mainly generate income via rent payments. Mortgage REITs own mortgages or Mortgage Backed Securities (MBS) and generate income through interest on these mortgages. A Hybrid REIT consists of both Equity and Mortgage assests.
Investors are often assured that REITs are a stable product in a housing market which is inherently volatile. Private REITS are frequently advertised as very stable, when in fact they may not be. Some broker dealers even claim to be able to eliminate volatility in this type of investment. Unfortunately, a REIT determines its own value so investors are unable to determine its volatility. This is why broker dealers have a duty to their clients to investigate this type of product and recommend it only with warnings of its volatility.
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