The dividends attracted me.  I have two REITs in my IRA.  I was looking at buying into fix income but was discouraged on the low bond/CD rates.  I decided to go with REITs instead of bonds since no company/government entity seemed safe from defaulting at that time.  With 20% dividends it won't be long until I double my money and set my stops so that I will not lose my "principal".  Both of them have been trading in a range slightly higher than when I bought them.  One of them is paying a 10% dividend and the other is paying 20% dividend.  Even if the stock price goes nowhere I will still be happy with the dividend.  I bought them both after the '08 crash.  The 10% one cut it's dividend in half in '09 and in '10 raised it 25% and so I bought the stock.  Once the economy recovers and the dividend returns to it's previous high then I will be getting about 20%. 

 

John Rice

 

 

The first company is AGNC which is trading between $25 - $31 since the end of '09 and pays $1.40/share each quarter.

 

 

 

REITs cover many different investments.  I agree that I would not buy into one that concentrates on shopping centers and the like.  CWH has a good majority of government properties on it's inventory.  There is one that does college dorms that is doing well.  Look at Public Storage, the stock has been in a continuous climb up and has double since '09.  So I wouldn't put all REITs.

 

John Rice

ABODI Investment Club

 

 

Just a reminder that Bivio does not recommend holding REITs in taxable accounts.  I believe that they say that most REITs do not send your tax reporting information until April and can do corrections after April 15th.  I don't know why the government lets them do this.

 

John Rice

Hi John,

Thanks for reminding people that we do recommend that you stay away from holding REIT's in your club because of the complexities that you'll have making the entries associated with accounting for their distributions correctly.

You're right that one of the issues is the timing of when you receive the information you need to make the entries.

REIT's do have to send out a 1099 by Feb. 15. That is where you will find how all your REIT distributions for the year need to be adjusted and probably reclassified into several types.

However,

A REIT is a special type of business and one of the requirements for them to be a REIT is that they distribute at least 90% of their income to their investors. This means that until they officially close and audit their books and prepare their own taxes for their fiscal year, they may not know for sure that their initial classifications are correct and even whether they will be able to meet the 90% rule. There are a variety of tax and accounting issues that might come up for you if they need to change their initial information.

This is why they are given 90 days from the last date of their fiscal year to get you corrected tax information. So, if your REIT closes its books on Dec. 31, and sends you a 1099 by Feb. 15, it may still send you changes up until April 1.

If the fiscal year for a REIT is something other than the calendar year, they have 90 days from the end of their fiscal year to get you information. So, you could receive tax information you need to process at other times during the year also.

All of these tax and accounting issues are on top of determining whether a REIT is a good investment or not. I took a brief look at the AGNC that you mentioned. It holds mortgage backed securities and apparently is very affected by short term interest rates. Given the problems in the past with businesses valuing assets like CMO's and the swings Leo mentioned that happened this summer which I imagine were due to the potential for changes in short term rates, I personally would want to make sure I had put a lot of time into understanding the business model before I chose it as an investment based on what seemed like an enticing yield.

Perhaps you both can share your experiences as time goes on so others can learn from them.

It does sound like you both have a good plan by holding these in tax advantaged accounts such as IRA's or 401(k)'s. At least then you don't have to worry about dealing with all their tax issues.