Welcome to Investing for Beginners podcast, I’m David Ahern, and Andrew Sather’s here tonight. We’re going to talk about REITs. We have episode 33 tonight, and we’re going to talk a little bit about REITs.

What we will learn today:

* What a REIT is

* How to value them, hint: the same way as any other stock

* How a REIT can help your portfolio

* REITs can give you exposure to the real estate asset class

* How to treat dividends in REITs from a tax perspective

* Whether or not they are a good investment for you.

We had a listener comment on our podcast earlier a couple of episodes ago, and we wanted to go ahead and answer his question and speaking of answering this question. Andrew has his comment up, and he wanted to go ahead and get us started.

Andrew: yeah so this is from Bart. He says this was a comment he left on the blog on one of the episodes.

He says “guys love the show. The quick question whether your thoughts on REITs, they seem to pay high dividends but is there a catch?”

So maybe we should start off and introduce what a is REIT. Its REIT stands for Real Estate Investment Trust; it is basically like it says in the title it’s a trust and it usually holds a portfolio of real estate different properties. And there are different categories that you can see when it comes to these.

Some of them will hold commercial real estate so think the malls and office buildings and the real estate that’s attached to those. Some of them do residential real estate, there are other types which I don’t know the nitty-gritty on all of them. But there are quite a few different industries around REITs. And so basically they hold these basket of real estate properties, and they hold them and their income-producing properties.

Then what the owners will do is they’ll reallocate those whatever income comes from the trust then gets distributed to shareholders.

So it works like a stock as in you can buy it in the stock market on an exchange. You can see that price go up or down you get paid a dividend based on what the earnings are, and so it has a lot of similarities to stocks, but it also has some technicalities which I think we can get into as.

Dave: well yeah they’re they’re interesting, they’re different beasts for sure. They’re you know the valuations of them are a little different than other regular stocks. Just because of the way that they’re set up.

And you’re right on the money about the different types of REITs and you know I’ve read different things about REITs in some information about them and you know I’ve seen different blogs and listen to podcast people talking about them. Preston and Stig, two of our favorites had a great interview; I guess another interview I’m sorry they had a question-and-answer session not too long ago that Andrew was telling me about before we went on air.

That they talked a little bit about REITs on there well, and they had some great comments on the REITs as well. And so there’s a lot of great information out there about REITs and you know the thing that I kind of like about the REITs is I remember when I was a young kid my dad told me once that land was one of the greatest investments you could ever have because it’s a tangible asset. And it’s something you can always own.

Being somebody that’s not coming from a lot of wealth you know having the wherewithal to buy large plots of land to just kind of sit on and try to recoup that money at some point in the future is not something that’s really kind of in my nature.

The whole buying the house thing and flipping thing that’s just not me but REITs gives you that. The cool thing about them is they can give you a kind of an entry level into having a bit of real estate in your portfoli...