What is a REIT?
A real estate investment trust, otherwise known as a REIT, is a term used to describe corporations that specialize in investing in real estate and real estate mortgages. Since many REITs are publicly traded they have become popular with investors who seek them out as seemingly secure purchases.
Are Real Estate Investment Trusts, REITs, Overpriced?
REIT Discussion Transcript
Mike: John, with all the focus in high yield investments, such as real estate investment trusts, or REITs, are these becoming overpriced?
John: If everybody wants them they are more expensive. And everybody wants income, and they overpay for real estate investment trusts and high dividend common stocks. But what people don’t understand is that when safe investments have higher yields, which they
Typically you will have people, the investments that look safe will have to have even higher yields and they will fall in price.
e in utilities and bank stocks for the dividends or real estate investment trusts. But then as interest rates start to rise, they say ‘well that looked really good at four percent yield, but now that I can get a safe treasury bill at three percent, I think I now need five or six percent on that previously attractive investment’.
And when you need to get the interest rate up on an investment, the way you do it in the market place and the secondary market is not having the issuer phoning you up and saying ‘I’m increasing your interest rate’, because that never happens. You have to price follow it until the yield increases.
REITs Inevitably Fall
So what you are going to see is all these high-income instruments, that are supposed to be safe, fall when interest rates rise.