4. REITs aren't as highly correlated with the major indices as most industries are. As such, they may provide your portfolio with some much-needed diversification and should help to smooth out your overall returns, particularly during market downturns.
5. REITs own hard, tangible assets, such as land and buildings, and often sign their tenants to long-term lease contracts. Because of this, REITs tend to be some of the most stable companies on the market.
Disadvantages:
1. Generally requires more "hands-on" involvement than other investment options.
2. Maintenance and repairs take time, money or both. (And always seem to take more of both than planned).
3. You have increased exposure, both legal and financial.
4. Your cash is tied up in "bricks and mortar" and is not immediately accessible.
5. Because they can only reinvest up to 10% of their annual profits back into their core business lines each year, most REITs tend to grow at slower clip than the average stock on Wall Street.
6. Although the business tends to be a fairly stable one, REITs are not without risk. For example, their dividend payments are not guaranteed and the real estate market is prone to cyclical downturns.
7. Since they already enjoy a unique tax-advantaged status versus other firms (more specifically, they are allowed to deduct the dividends they pay out from their taxable income), from an investor's perspective, roughly 2/3 of all dividends paid by REITs do not qualify for the new lower 15% tax rate implemented by congress last year. By contrast, the vast majority dividends paid by non-REITs are taxed at this new low rate.
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