Investing in Real Estate Investment Trusts has several tax advantages. Todd Schoenberger tells us about one particular REIT that is worth adding to your portfolio.

The following is taken from this week’s Market Insights video featuring Todd Schoenberger.

Krista Das: We’ve heard a lot about the U.S. housing market lately. Probably too much. But there’s another avenue into real estate that doesn’t require you to buy property. It’s called a real estate investment trust, or REIT for short and is a security that acts like a stock with the major exchanges.

So, tell us a little about investing in REIT’s.

Todd Schoenberger: Okay. Well, a couple of things. One there is some significant tax considerations for investors to consider when investing in REIT’s. That’s a big plus if you’re looking for some type of an income adjusted investment.

The other side of it is that REIT’s offer a safety component whereas instead of just investing in actual tangible real estate, you can actually invest in an investment trust that holds many properties of real estate. However, there are different types of REIT’s and there are some that investors may want to consider and others they may want to stay away from.

Krista Das: So what are the advantages of owning REIT’s versus owning another stock or owning property?

Todd Schoenberger: That’s a great question. One issue is that clearly the tax consideration and the income that you do receive from those REIT’s.

A couple of different REIT’s that are out there are apartment REIT’s, hotel REIT’s, even housing REIT’s. I always like to look at shopping center REIT’s. I think this is where the economy is pushing the consumer and mainly in the form of higher gas prices.

Right now you have gas prices at four dollars north at the pump and therefore, you’re going to have more of an inclination of consumers that to go these shopping centers that do their one stop shopping. Maybe do their grocery shopping. Get their coffee, their cleaning, everything at just one stop because the days of actually going from store to store to store are pretty much over with these higher gas prices.

Krista Das: And what about other specialty REIT’s? What are some other ones that you would recommend?

Todd Schoenberger: Well, there are a number out there, a number of different REIT’s. There’s some hybrid REIT’s actually that are out there.

But right now, I would say you want to focus on the shopping center REIT’s for a couple of reasons just like I said before, for the one stop shop, but also thinking that these are where the real income is going to come in for investors.

For example, retailers are now thinking look, I want to have my shop in the shopping center places so that I know I’m going to get all the walk around traffic. Mainly because, like I mentioned before, you just want cars that just go in one spot, they stop and then they go from there.

The leases that are actually being sold here are going out three, four or five years for some of these shopping center REIT’s. One is Cedar Shopping Centers, which clearly they’re located here in the mid-Atlantic, as well as in the northeast. That is one shopping center that you actually see a grocery store chain. You might see the Wal-Mart there. You’ll see the Starbucks.

What it’s doing is it’s causing all these other little mom and pop shops to actually rent out and lease those open areas. Therefore, those heavy leases and that increase in money that’s flowing in is going to be then returned back to investors.

Using my example of Cedar right now, their dividend yield is paying 7 ½ percent plus investors might actually receive some type of capital appreciation if Cedar decides to sell any of these shopping centers in the future.

Krista Das: Now where does Cedar exchange on?

Todd Schoenberger: New York Stock Exchange, trading in the low teens right now and it would be something to consider for investors that are thinking of a derivative play as a result of the higher gas prices.

Krista Das: Where do you see the stock going in the near future?

Todd Schoenberger: Well, right now it seems to me that you’ll have some of the bigger rates that are out there, some of the private equity firms that are looking for some type of cash flow, some type of income that is coming in.

What is happening is now some of these shopping center REIT’s are now being looked at as potential acquisition targets. But because of that you have the potential of maybe being acquired, but even then so you have a higher yielding investment right now, plus the potential of capital gains in the future.

So realistically, yeah, you can look at a 25 to 30 percent upside potential in this stock and that’s before the end of the year. But again, it’s all prevalent to the higher gas prices. It’s just a derivative play of thinking of how you to make money when you have to pay four bucks at the pump.

Source: Buying REITs