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     REIT stands for Real Estate Investment Trust. As their name implies, REITs make investments in some facet of the real estate industry. In general terms, REITs are either equity REITs or mortgage REITs. Equity REITs seek out, purchase, and hold interests in actual pieces of real estate. Mortgage REITs act as a bank or mortgage banker, lending out funds held by the trust to other parties that are purchasing pieces of real property. Mortgage REITs make their income from the spread between the rate of interest charged the borrower and the cost of funds loaned. Equity REITs make their income from renting out the property they own, providing services to tenants, and any appreciation from the sale of properties owned. Beyond these two distinctions, the differences in REITs can be almost endless.

    REITs frequently have a specialty or focus. These specialties may include the type of property invested in, the anticipated liquidation date of the trust, or a specific goal for the trust. A REIT may invest in, or lend on, only apartment buildings, retail strip malls, motels, theme parks, or mini storage units. Just as there are as many different property categories there are REITs specializing in them. The thought is if they go to the trouble to become proficient in managing a movie complex or residential apartment building they can use the lessons learned to better manage additional properties of the same type. Other REITs may diversify into a mix of properties to gain from seasonal or economic differences. When patrons aren't at a summer filled theme park they may be spending money at a winter frequented ski area. If retail space rentals are down in a weak economy then more people are renting apartments. REITs may be an ongoing venture or have a target date when they hope to liquidate their properties. An investor with a child going to college in 11 years might invest in a REIT hoping to liquidate their holdings in 8-10 years. Most REITs pay some sort of dividend that is usually higher than the rate received on CDs or bonds. The rate is higher because there is slightly more risk in a REIT investment than there is in a CD or good quality debt instrument. The good news for the average investor is this high dividend tends to buoy the price of REITs in ugly markets because shares in the REIT will be quickly purchased as an even slightly lower price increases the yield of the dividend. This holds true as long as the REIT isn't experiencing individual problems or doesn't have a large exposure in a market that is particularly weak. A REIT that owns exclusively apartment buildings may not be attractive if new rent control is enacted. Neither will a REIT that owns only movie complexes if a youth curfew is put in place. The price of REIT shares can move up quickly with developments in interest rates or a move to more defensive investments.

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