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1. 

   joer1212
   

   Apprentice
   Joined: Mar '12
   Posts: 34

   Should I invest in individual REITs?

   I already maxed out my employee 401k and 457b. My money in these is invested in index funds consisting of 60% stocks and 40% bonds/fixed income.
   I have a few thousand dollars left over at the end of every year.
   Initially, I was considering putting half that money into a REIT index fund (Vanguard REIT Index Fund: VGSIX), and half into a commodities index fund (Rogers International Commodities Index: RJI).
   However, I was looking at the history of both indexes, and I discovered that they are VERY volatile. I would hate to retire when I need to draw money from these investments in a year where they are down 40%!
   So, instead, I thought of purchasing a couple of individual REIT companies that pay a high dividend. So, even if the stock price of these individual companies is very volatile, at least the high dividend will cushion the ride.
   I just opened up a Roth IRA with Scottrade, and I plan on investing $2,500 a year in 2 REIT companies from the following list:

   American Capital Agency Corp (AGNC); dividend yield 15.52%

   Sabra Health Care (SBRA); dividend 9.90%

   Annaly Capital Management (NYL); dividend 15.11%

   Two Harbors (TWO) dividend 16.8%

   What do you think of this? It seems too good to be true that these companies pay double digit dividends, and yet their stock price has appreciated over time, too. What's the catch? Am I missing any risks and pitfalls?

   FYI: I am 42 years-old, and I will be retiring in the next 8-10 years. My tolerance for risk is low to moderate.

   Posted 1 year ago #
2. 

   George the original one
   

   Expert
   Joined: Jul '10
   Posts: 1,970

   I think you need to know more about what you are selecting to invest in...

   AGNC, NLY, and TWO are mortgage REITS (mREITS). They invest in mortgages and are highly leveraged. They do not own any properties. When interest rates go up, their profit margin sinks and sinks very rapidly due to the leverage. AGNC operates somewhat differently in that their stated goal is to protect net asset value whereas the others are trying to generate the safest cashflow they can. This is not to say that they are bad investments (I've owned AGNC and NLY, currently hold some AGNC, but at a reduced position), merely that they may not fit your goals and risk tolerance.

   SBRA has fallen from a high of 55 in Jan 2008 to today's price of 15. It seems to have only just begun paying dividends, so I would be suspicious. I know nothing else about it.

   Posted 1 year ago #
3. 

   jacob
   

   Expert
   Joined: Jul '10
   Posts: 3,360

   During the credit crunch several REITs decided to halt their dividend or pay it out in shares. Such REITs' share price fell a lot.

   REITs are not low risk. I would have suggested utilities but shale gas is currently wrecking havoc on energy prices.

   mREITs are more leverated than REITs. They're essentially carry-trading the interest rate. Now, Bernanke has said he'll keep the rate low for at least 2 more years. However, based on his past statements, he's not all too good at the prediction game. If interest rates begin to rise, the mREITs need to unwind fast.

   Posted 1 year ago #
4. 

   secretwealth
   

   Expert
   Joined: Jun '11
   Posts: 1,569

   I was in REITs but took profits early (too early, actually). It seems to me mREITs can be a good place for yield, as long as you have tight stop losses in place and are willing to look at the stocks daily. They're much more work than investing in T or JNJ.

   Posted 1 year ago #
5. 

   joer1212
   

   Apprentice
   Joined: Mar '12
   Posts: 34

   I forgot all about the different types of Reits. I knew there had to be a catch somewhere.
   I'll probably just purchase a few blue chip dividend-paying stocks from Warren Buffet's holdings. The only problem will be know when is the right time to buy them.

   Posted 1 year ago #

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