Real Estate Investment Trusts [REITs] avoid double taxation and their yields can be fairly high. As long as REITs distribute at least 90% of taxable income to shareholders, they are not subject to federal income tax - thus making them an attractive option for investors.
REITs are generally divided into two types: mortgage and equity. Mortgage REITs hold mortgages, mostly on homes, whereas equity REITs hold the properties themselves. Each type also has numerous sub-types. For example, equity REITs invest in various kinds of properties, including industrial buildings, office buildings, residential, retail, and diversified. These sub-types can be further sub-categorized. Residential equity REITs, for instance, include apartment buildings, manufactured housing parks (mobile home parks), and jails.
With the downturn in the housing market, many potential buyers are taking a “wait and see” approach - opting to rent rather than buy. The Wall Street Journal Online recently ran an article titled “Renters Gloat Over the Housing Slump.” If mortgage defaults increase, debt REITs will suffer. However, if the number of renters increases, equity REITs specializing in apartments will benefit.
The following is a list of the highest yielding residential REITs. In each case, whether it is an equity or a debt REIT is specified, along with the type of property the REIT invests in.
Hanover Capital Mortgage Holding (HCM) 12.1% Mortgage
American Mortgage Acceptance (AMC-OLD) 9.2% Mortgage
BRT Realty Trust (BRT) 8.4% Mortgage
Sun Communities (SUI) 7.7% Equity-Manufactured housing
First RE Investment Trust of NJ 7.7% Equity-Apartments, Commercial
UMH Properties (UMH) 6.6% Equity-Manufactured housing
Investors Real Estate Trust (IRET) 6.5% Equity-Apartments, Commercial
Highland Hospitality (HIH) 6.2% Equity-Extended stay hotels
CentraCore Properties Trust (CPV) 5.7% Equity- Detention facilities
America 1st Apartments (OTC:APRO) 5.4% Equity-Apartments
Associated Estates Realty Corp. (AEC) 5% Equity-Apartments
American Campus Communities (ACC) 4.8% Equity-Apartments
Home Properties (HME) 4.4% Equity-Apartments
Fieldstone Investments (FICC) 4.3% Mortgage
Apartment Investment & Mgmt (AIV) 4.3% Equity-Apartments
United Dominion Realty Trust (UDR) 4.0% Equity-Apartments