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How to Use Your Credit Report

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When you check your credit report, do you know what you are looking for? Do you know just how important a healthy credit report is?

Thousands of people everyday checks their credit report without truly understanding what it is they are looking for or how important their credit report really is.

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Identity Theft Detection

One of the main things to be looking for when checking your credit report is for signs of identity theft. If you read through the report and see entries from banks or other financial institutions that you have never used or never even heard of, chances are you are a victim of identity theft.

How Your Retirement is affected

Over use of your credit means that you are spending funds on interest payments that could have been put away for your retirement savings or investments. Having a credit report will more than likely increase the amount of interest you have to pay on credit card and loan payments.

Used for More than Just Loans

Many people do not realize that your credit report is used for making decisions about you that goes beyond getting approved for a loan or line of credit. Many landlords now use your credit report to determine if you will pay your rent on time if you were to lease from them. Cell phone companies us your credit report before letting you sign up for a plan.

Employers are now using your credit report as part of their screen process when selecting applicants. Additionally, insurance companies will use your credit report to determine what your insurance rates will be.

Information About You

Make sure the information pertaining to you, such as employer and address, is correct. It does not directly affect your credit score, but lenders will use this information when deciding about your loan application.

If the information that you provided the bank does not match the information on your credit report, it could hinder your chances at being accepted.

Open Accounts

If you have accounts that are open, especially ones with a balance, make sure they are reported as open on the report.

If you have an account with a balance that is reported as closed, this will negatively affect your credit score. On the flip side however, closed accounts that are reported as open will no hurt your score.

Total Debt Owed

When looking at your credit report, total up all the debt you owe. Some reports will do this for you but not all of them will. This will let you know how much debt you owe and if you have too much debt. Comparing the total debt you have with your income will give you an idea of what you need to do to start getting rid of some of that debt. This makes for a perfect time to come up with a budget and plan to get out of debt.

You are entitled to one free credit report every year. Take advantage of it and start planning on removing your debt. Check to see if there are any debts that you are not aware of and protect yourself from identity theft. With today’s e commerce world, it’s easier than you think to become a victim.

 

How to Choose a Career

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High school is completed and now you must make the decisions on what career to choose. You’ve just lost your job and must make a career change, now what?

The physician informs you that you must change careers for medical reasons, now what? Research show people change their jobs eight different times in their lifespan.

Deciding what to do now is a difficult decision to make.

Before rushing to a job portal to find open jobs read our article below.

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What are your interests? Doing a Self-Assessment of Your Likes and Dislikes

The first step in considering a career is doing a personal self-assessment of what you like and do not like. Choosing a career with duties you dislike would be like choosing a meal with food that you dislike.

It would not work. Think about the types of things you do like and how it might relate to a career. What type of things would you dislike doing?

Make a List of Duties You Like and Dislike

In this list write down your interests, abilities, and desired life style you want in the future. Think about the different types of jobs with these interests as well as any job with duties that you might not like.

What types of jobs and careers do you believe you would like? What types of careers would you not like? Give this some serious consideration in helping you decide what career to choose.

The Next Step Should Be A Personal Inventory

Make a list of your strengths? What are your weaknesses? Everyone has different strengths and weaknesses than others. These make a difference in choosing a successful career for you. What are your skills? If you do not enjoy writing then a career in journalism would not be the career for you.

If you enjoy counting money and doing accounting then the position of bank teller or accountant might be the perfect job for you. Think about what you are good in doing and how these link with different careers.

Consider Different Careers

Go to the library and get several books on different careers. Take the self-assessment list and the personal inventory with you. Look at various careers as you consider information from the list.

What sounds like an exciting career to you? Get on the Internet and type in different careers. What interests and strengths sound positive with different careers? Make a list of possibilities of various careers. Write down what you see yourself doing in the next five years.

The Final Step to Choosing a Career

Take a close look at the information you have from your lists. What careers do you see yourself doing? What types of jobs would you not want to do? Talk to friends and relatives about these different types of careers. Do they enjoy their work? What do they dislike about their careers?

What is important to them? Are there areas of their work that they feel they might like to change? Consider every aspect of the job before thinking about doing it. Close your eyes and see yourself five years from now. What do you see yourself doing? This will probably be the right career for you.

Binary Option Trading As A Hobby

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You may or may not be familiar with binary option trading.  If you aren’t, it’s really quite simple; Choose a stock (i.e.. facebook or MIcrosoft etc.) and decide if it will go higher or lower with in a certain period of time, such as an hour, day, month, or year.

If you are right, you are paid out. Not only can binary option trading be profitable, it can all be quite entertaining and rewarding for those looking to get into a new hobby.

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Who Might Enjoy Binary Option Trading?

A large class of people could enjoy and benefit from binary option trading It may appeals to casino goers, online gamers, people watchers, avid news watchers, and people looking for a way to make money online.

Many are attracted to binary option trading as a hobby for it’s simplicity, not to mention the rewards that it sometimes brings. When you get the hang of standard binary option trading, you can advance to one of it’s variations, such as one touch, no touch, or range trading. Each of these require their own technique and strategy, and trading can be much like playing a game. Once you get the hang of each type of trading, you’ll be playing like a pro.

What are the Risks?

In many ways, binary option trading does carry some degree of financial risk. It is important while you are having fun wheeling and dealing away, you do not get in over you head. Binary option trading is often referred to as all or nothing trading; you lose, you got nothing.

Do not bet more money than you can afford, and buy options that are based solely on impulse. Each option purchase should be a well thought and sensible process. As with any hobby, practice makes perfect. Overtime, you will learn the skills you need to become a successful and experienced binary trader.

What are the Benefits?

Benefits can be huge! if you get the method and understand the market direction which sometimes can be really easy to notice, you decide to make big sums of money!

Let’s say you are sure that the market will go down after really bad news from the FOMC or Eurozone credit issues, you sell the market and invest 5000$ – if after one hour the market is under the price you sold, you won 4000$ and even more, and that’s on top of your investment! Isn’t that awesome!!!

How to do it and succeed?

First chose an honest and best binary options broker, open an account at one of the brokers available and wait for your opportunity, when it comes you will know, you just need your

Creative Ways To Make Money Blogging

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Blogging is easy, everyone can do it (given than you know how to write). For quite some time now blogging is also free for everyone (in older days you had to buy a domain name and server space but those days are passed).

You can apply for a free blog on services like WordPress, Blogger etc. You will get your own personal web-space where you can write posts and upload images of your own.

If you write interesting content you can make money from your blog. How? Well the readers that are going to visit and read on your blogs can be monetized.

Read on about creative ways to make money from your blog online.

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Any blogger knows that a well-written blog updated regularly can be a money-maker. Most know this is usually done through ads placed on your blog, but there are many other ways to make money with your blog that don’t involve cluttering up your content with banners or using logbook loans and sidebars.

1. Sell your content

If you have informative, valuable content on your blogs, then people will want access to it and read it. Even if they can find it on your blog for free, many consumers are willing to pay a little extra for the convenience of getting everything in one package.

This package may be an e-book of your posts or even tutorials and seminars, but it should be worth whatever you decide to charge for it. As an added incentive to buy, include a few extras that visitors can’t get on your blog for free.

2. Sell your services

Whatever your blog is about, if you’ve been recognized as a well-informed member of an industry with a good readership, you can make money by selling yourself.

If you blog about computers or software, advertise your services as a trouble-shooter. Even if you just have a great blog with lots a readers and high search engine rankings, you can offer consultation services for new bloggers who want to build a readership.

3. Become an Amazon Associate

Any blogger can be an Amazon Associate just by advertising Amazon products in exchange for a commission on anything sold through your ads. You can advertise the old-fashioned way with banners or text links, but there’s also the option to add various Amazon widgets to your blog.

For bloggers who are fine with making money from ads, this is a different option that may net you more money over the long haul, as Amazon.com is a well-known and trusted site.

4. Apply for Adsense

Google Adsense program is a gold mine if you are able to attract visitors. It pays really well and has been a main source of income for many bloggers for many years now.

The way Adsense works is the following. Blog owner puts ads on the blog (Adsense strict policy must be followed when placing ads (meaning no deceptive ads are allowed for example)) and when reader clicks on the ad the owner gets a part of the payment (around 68% revenue share). So each time the ads are clicked the owner gets payed. More visitors means more potential clicks which means more potential revenue. Pretty easy? Quite so. You just need quality content that would attract visitors.

Note: First you need to apply for Adsense. Publishers are not automatically accepted. Also, to be accepted in the program you will need your own domain and hosting (shared hosting like WordPress is not allowed).

5. Sell your space

If you have a great blog with lots of repeat readers, there may be people out there willing to pay for a guest spot on your blog.

It will take some searching and queries to find the right blogger, but it is an option to check out. This not only helps you make some money, but can also lead to backlinks and a great working relationship with a fellow blogger.

6. Provide private access

With your own domain-name, some plug-ins and good software, you can build space to accompany your blog that readers can access for a small fee.

This may mean private forums, extra posts or articles, a newsletter etc., but as with selling your content, it should be worth what you charge and how much effort you put into its maintenance. As with anything, it will take trial and error over time.

How to Evaluate Your Financial Planner

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Having the guidance of a professional when you are investing or plunging into a new business venture can be a major help in managing your finances as well as generating maximum profit and income.

A good financial planner can assist you and point you in the right direction, while bad planning can not only cost you a lot in the course, but may also result in a major loss at the end.

Therefore, it is important to evaluate and judge your financial planner as thoroughly as possible.

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Before Hiring

Qualification and Client History

The qualification of your selected financial planner or advisor is the basic gauge you can use to evaluate them. A highly qualified and registered planner with a good corporate background and history can be a safe bet and can ensure a smooth and satisfied relationship.

Therefore, research and ask around about your financial planner prior to engaging him in your service.

Fees and Consultation

Whatever fees and consultation charges your planner is asking from you, it is a good idea to confirm it in the market so that any chances of overcharging are reduced and you do not end up paying more than what is required.

Also discuss and confirm how much work and planning you require for your investment and how much fee you are going to pay before the start of the engagement.

After the Engagement Ends

Personal Dealing and Behavior

A healthy, honest and trustworthy relationship with your planner is the key to fruitful results. Make sure your planner is honest and reliable and does not involve foul play and dishonesty in the dealings.

The best planners keep you in confidence and discuss finer details of the investment of your choice before making it final and closing the deal.

Results Achieved

The results that you achieve on your investment are the living proof of the authenticity and competency of your financial planner.

If you have encountered minimal losses and a great deal of profit and revenue from your financial engagement, then it means that the planning and strategy of your planner was discreet, beneficial and targeted.

How Much Money Is Saved?

The money and resources you save at the end of the day are the true results of your investment. If you end up spending more than you had invested then this is most likely the result of inefficient planning and timing of your financial advisor.

Therefore, calculate how much you spent and what were your investments. Also compare the fee you gave to your planner and how much you saved in this aspect as compared to other advisors in the industry. This will give you a better understanding of whether the planning was worth the results or not.

Tips on How to Deal With Stressful Situations While Filing Insurance Claims

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The markets of intangible services basically include life, health, automobiles, property, and various other types of insurances. If you choose the best insurance plans by considering them judiciously and wisely, you stand to get a lot of relief in your bad times.

So what happens if you face any kind of disputes while filing your insurance claims? Since more and more insurance dispute cases are being seen these days, there are chances of you coming across such a situation too.

During such situation, the insurance company might settle the claim by offering low value against the worth of the damage, or they might even decide not to cover your losses.

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Here are few tips to tackle such situations logically

The truth is that you can never recover the entire loss suffered by you from your insurance company, even if you are a regular premium payer. Moreover, not all the claims are accepted by insurance provider, and some are denied even if they are legitimate. Do not expect any kind of undue mercy from them. Rather they might try to take advantage of your situation. Insurance companies might get on your nerves when you will file for the claims.

Insurance claims are filed when a person is subjected to some kind of trauma and distress. Such losses or setbacks downfall could break anyone down at least for few days. So it is always advised to take help of your spouse, family member, or friends while negotiating the claims. It is because the insurance companies will have an advantage over the accident victims. After seeing the victim’s state of mind, they will try to up their profit margins by paying off low settlement price. Generally the sufferer tends to accept such amount, since they will not be in a clear state of mind.

It is always better to either hire a lawyer or let your dear ones decide for you after they calculate and assess your real losses. They will be in a better position to figure out the amount you actually deserve to get from your Insurance provider.

If you sense that the settlement amount they are offering is too low than what it is worth, try to seek help. You can firstly refuse to accept, and ask for a higher amount politely. If they refuse to this, then file a written complaint to the company’s dispute division. If they still do not help you on time, then you must escalate the case to the company’s higher authorities.

If your discussion with the company does not prove to be of any help to you, then you can take assistance from an expert lawyer, or from external dispute settling unions. You will need help from a competent lawyer with expert negotiation skills and the one who is well versed with insurance laws. Such a person can efficiently help your from incurring huge losses.

Tips to get the dispute settlement in your favour

are the following:

  • Read the policy, terms, conditions, and the contract carefully while buying an insurance coverage. Moreover, read it thoroughly to know what exactly you can claim for.
  • Try to ask for the claim amount which shows as a justifiable sum. You may even hire a reliable third party to assess the correct amount of the damage or loss of your property, vehicle etc
  • Paperwork for your appeal should be filled correctly, while strictly meeting the stipulated guidelines set by the insurance company. Also save their duplicate copies with you.
  • Collect evidence of the claim. Maintain account of the eye witnesses, photographs of the damaged material or property loss, or the death certificate if you are claiming a life insurance, etc.
  • If you do not wish to hire a lawyer, then at least consult and seek advice from a solicitor who knows all about handling claims.
  • Do not accept or sign on any settlement cheque beforehand. It could weaken the chances of your raising your dispute, and getting it solved in your favour.
  • Maintain all the records of your mails, conversation, and any communication you have with the insurance company.

What Are Some Short Term Savings Options

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While many people may invest in real estate or in the stock market, everyone should have a fund that is kept out of either of these investments and kept in a savings type account.

Why? There are a number of reasons for this including (1) having a fund to access in the event of an emergency (2) having available funds for large expenses such as vacations, home improvements etc. and (3) saving for a major purchase such as a house or car.

Savings accounts may not provide a very high return, but they offer capital security as most of the products are FDIC insured. This insurance provides cover on account balances up to $100,000. Investing your cash in the stock market while saving for that house that you plan on buying in the next couple of years can be a very risky strategy. Sure, the market could go up in that time, meaning that you would reach your savings goal earlier. However, the market could just as easily fall, leaving you with a much longer time period before you can get that house.

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There are a number of different savings products on the market that are suitable for short term savings. Indeed these short term savings can provide a halfway point if you are saving for an investment and need to gather up a minimum initial investment sum. These products should be compared by looking at the APY (Annual Percentage Yield). The APY is defined as the percentage to be disclosed on interest earning accounts that reflects the total interest to be earned, based on the institution’s compounding rate assuming the funds are in the account for a 365 day year. Let’s have a look at some of these short term products.

1. Checking Accounts

Yes, there are some checking accounts that pay interest (including those offered by brokerage houses). The advantage of a checking account is that you have immediate access to the funds, should they be needed.

This could also be a disadvantage as there is the temptation to dip into the funds for impulse purchases. Another disadvantage is that in order to earn interest (traditionally not a high rate either), a minimum balance must be maintained in the account.

2. Savings Account

The traditional savings account or savings passbook seems to have gone out of favor in recent years. The main reason for this is the low rates traditionally on offer for these accounts – along with the growth of the internet, where it is now much easier to find better returns at the click of a mouse.

These rates have fallen from over 2% 10 years ago to less than 0.5% today. However, these accounts generally have a very low or even no minimum balance requirement, which can make them a good place to get kids started on the habit of saving. Savings accounts also are insured under FDIC and are usually accessible on demand.

3. Money Market Accounts

Money market accounts are a step up from traditional savings accounts. There are different minimum required balance levels – the higher the minimum balance, the higher the interest rate. For example, a money market account with a $10,000 minimum balance would have an APY of 1.56%, whereas a money market account with a minimum balance of $25,000 would have an APR of 1.92%. Like savings accounts these are insured under FDIC and are accessible, though there may be a limit on the number of transactions allowed per month. There are also Jumbo Money Market accounts with minimum balances of $100,000 – however any excess of the $100,000 would not be covered by FDIC.

4. Certificates of Deposit

Commonly known as a CD, this is a fixed time deposit, offering different interest rates/APY’s depending on the term chosen. The shortest term CD is usually 1 month with the longest being 5 years. Currently 1 month CD’s are offering APY’s of 1%, with 5 year CD’s paying 3.91%. (10 years ago rates were over 5%). Returns will be higher than money market accounts but one of the main disadvantages is that the accountholder cannot withdraw money from their CD during the term without being subject to a penalty.

However, an investor can stagger their CD investments so that they have CD’s maturing on a regular basis. For example someone could have 5 one year CD’s maturing on 5 consecutive years instead of one 5 year CD maturing on the one date. In this way, the customer will have access to one of the funds every year without penalty and may be able to take advantage of any increase in rates when they go to re-invest in a new CD. Investors usually have the option of letting the interest roll over into the new CD or transferring the interest to another account.

5. Money Market Funds

These are different from money market accounts shown above as they are usually offered by mutual fund companies. The mutual fund companies invest in high quality short term securities offered by the government or government agencies. There are hundreds of these funds on the market place, each with their own minimum investment amounts. One advantage that these accounts offer is that it is possible to invest in a tax free fund.

Yields for taxable money market funds are currently running between 1.5% and 1.75%. Non-taxable funds are offering yields between 1.1% and 1.6%. It’s important to check the expense ratio (the fee charged by the mutual fund company to manage the fund) as that can have a significant impact on the returns. Also, these accounts are not insured by FDIC.

Aside from the above basic savings products, savers can also purchase government securities – bonds, treasury bills and treasury notes. Treasury bills have the shortest maturity dates – up to one year. Notes can mature anywhere from 2 to 10 years and bonds anywhere from 10 to 30 years. The minimum investment is $1,000. Notes and bonds pay interest every 6 months, and can be bought or sold on the open market. Treasury bills pay interest at maturity as it is built into the price of the bill. You purchase the bill for less than par value (say $950) and the bill is redeemed by the government at par value ($1,000) with the difference being the interest earned. Also, the interest earned on these is exempt from state and local taxes. Another federal bond is the I bond, which grow in value using inflation indexed earnings for terms of up to 30 years.

As well as Federal bonds, it is also possible to purchase State and Municipal bonds. Interest earned on these is usually exempt from federal taxes and may also be exempt from state and local taxes.

A good online short term savings option is ING Direct. They offer savings accounts and CD’s starting at competitive rates of 2.25% with no minimum balances required.

While the rates offered by these various savings products have been pretty miserable over the last few years, the recent increases in the Fed rate will drive up these rates also. While it is important to get the best possible return for your savings – search around for the best rates available and there are loads of sites on the internet offering this information – it is just as important to have access to the money in a hurry and have the capital secured. This savings account is not your entire savings, so don’t be looking to retire on it! It’s a small part of your overall portfolio, where access and capital security are as important as the interest earned.

What You Should Know About Real Estate Investment Trusts

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The real estate business currently is one of the most flourishing markets throughout the world; even a few years back the structure of the real estate scenario was not very well organized. The trusts concentrating in boosting the real estate business allow investors – by definition – to invest in real estates in a more manageable and effective way. They also act in providing securities to the real estate investor to buy property. Thus, the REIT helps in expanding the opportunities available to them.

Real estate investment trust (REIT) buy, manage, develop, and sell real estate and their basic aim is to distribute the majority of the earned money to the investors, without getting taxed at the corporate level. These tax benefits on real estate have been a great addition to the area of real estate asset benefits.

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Short history of REIT

Real estate investment trust was first created in the year 1960 by the US National Congress, but they played a very limited role in real estate for about three decades. In the first few years these trusts were a bit constrained because of the fact that were permitted to own real estate and were not allowed to operate or manage it, but later that changed and finally in 1992 they started to grow dramatically.

The primary benefit that these top real estate investment trusts had was that they were exposed to only one level of taxation, but the downside remained that the firm could retain only less than 10% of the income, so they have to rely heavily on the investors to pay off the shares.

Definition of REIT

Real estate Investments Trust is a form of a tax designation given to a corporation that invests in real estate and aims to reduce the corporate income taxes significantly. These are serious kinds of tax benefits on real estate andcan be only provided by these trusts. This organisation that is involved in owning and investing in real estate that includes apartments, shopping centres, office buildings etc. A trust of real estate investment, develops and operates properties and allows investors to put their money in professionally managed real estate, thereby increasing the real estate asset benefits.

Trusts looking after real estate businesses offer the investors a highly lucrative as well as efficient option to invest in real estate stocks; it also provides a road to make more money by investing in real estate. Most of the private real estate investment companies currently operating in the market use REITs to get access to a huge amount of capital from the public; this makes REITs a sort of mutual fund. The REITs can be easily compared to the mutual funds but the only difference lies in the fact that the investors and their cash remain invested into real estates rather than stocks of certain companies.

The United States real estate industry is undergoing a boom and for a company to qualify as a REIT, it must meet the following requirements:

  • It should be a corporation that falls under taxation.
  • The company must be managed by a board of directors or trustees
  • The shares of the company should be fully transferable
  • The firm should also have at least 100 shareholders.
  • The firm should invest at least 75% of its total assets into real estate.
  • The company is even required to pay at the least 90% percent of its taxable income as dividends to its share holders.

Every recent analysis indicates that real estate investment managing trusts are one of the finest ways of investing in real estate since they offer a greater amount of security than mutual funds. If you want to know what is the best REIT to invest in, well the answer to that will depend on how much capital you have and how much risk you are prepared to withstand. If you want to know how to start a REIT, then you can attend various seminars or join a real estate group or club that will show you a step by step approach.

What are REITs, or Real Estate Investment Trusts

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Interested in a real estate investment that you don’t have to take care of? Real estate investment trusts offer you a way to do this. Often called REITs (pronounced “reets”), these are businesses, often corporations, that buy real estate and manage the properties. You can buy shares and receive dividends.

There are quite a variety of kinds of REITs, including:

  • Commercial buildings
  • Apartments
  • Senior housing
  • Houses
  • Medical office buildings and other medical real estate
  • Shopping malls
  • Foreign holdings
  • Mortgage-holding
  • There are also mutual funds made up entirely of REITs.
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Some Pros and Cons of REITs

REITs give you a way to invest in real estate without having a lot of money. Since they are required by law to distribute 90% of the taxable earnings, they often have attractive income yields. The taxable earnings that are distributed to shareholders are tax-free to the corporation. Remember that not every business HAS taxable earnings every year.

Since the rents they receive from their tenants are generally predictable, their dividends tend to be rather reliable.

They are only as good as their management, of course, and if you weren’t born yesterday, you know that means that some REITs are no doubt better than others. A REIT mutual fund would be composed of different REITs and thus mitigate this risk.

Also, in some times and places real estate investments go down rather than up. In some cases, dividends may be suspended.

You do pay taxes on the dividends you receive.

So it’s an investment where doing your homework is a very good idea. You can get financial information on any particular REIT by contacting the firm or often from its website.

REITs can be part of an IRA, though there are tax pluses and minuses to that choice.

REITs are more closely tied in to what is going on in the real estate market than to what is going on in the stock market.

Diversification Benefits of REITs

Now more than ever, investors have realized the importance of diversifying their investment portfolios. From conservative fixed income investors seeking to increase their income while protecting themselves from future inflation to stock and bond investors who seek to diversify away the volatility of a concentrated portfolio, REITs offer investors a new way to accomplish an age-old investment goal: “How can I increase my return without taking on more overall risk?”

Diversification Benefits of REITs:

  • REITs offer an attractive risk/reward tradeoff
  • The correlation of REIT returns with other asset classes has declined over the past 30 years
  • REITs may boost return or reduce risk when added to a diversified portfolio
  • REITs are worth investigating as an addition to many types of portfolios.

FAQs About REITs

Here are answers to basic questions about REITs for investors, financial planners, stock brokers, the media and the general public.

1. What is a REIT?
2. Why were REITs Created?
3. How Can a Company Qualify as a REIT?
4. How Many REITs are There?
5. What Types of REITs are There?
6. What Types of Properties do REITs Invest in?
7. Who Determines a REIT’s Investments?
8. How are REITs Managed?
9. How do REITs Quantify Financial Performance?
10. How can Shareholders Treat REIT Distributions for Tax Purposes?
11. What Real Estate Fundamentals Should I Consider Before Purchasing?
12. How has Real Estate Financing Changed Over Time?
13. How are REIT Stocks Valued?
14. What Factors Contribute to REIT Earnings?
15. Who Invests in REITs?
16. Why Should I Invest in REITs?
17. What Role do REITs Perform in 401(k) Plans?
18. If I Own a House, do I Need to Invest in REITs?
19. What Should I Look for When Purchasing in a REIT?
20. How Can I Invest in a REIT?
21. How are REITs Different from Limited Partnerships?

1. What is a REIT?

A REIT is a company that owns, and typically, operates income-producing property such as apartments, shopping centers, offices, hotels and warehouses. Some REITs also engage in financing real estate. The stocks of most REITs are publicly traded, usually on a major stock market.

A business that qualifies as a REIT is permitted to deduct dividends paid to its shareholders out of its corporate taxable income. Because of this, most REITs remit at least 100 percent of the taxable income for their shareholders and so owe no corporate tax. Taxes are paid by investors on the dividends received and any capital gains. Most states honor this national treatment and also don’t require REITs to pay state income taxation. To qualify as a REIT, a company must distribute at least 90 percent of its taxable income to its shareholders annually. However, as with other companies, but unlike partnerships, a REIT can’t pass any tax losses through to its shareholders.

2. Why were REITs Created?

Congress created REITs in 1960 to make investments in large scale, income-producing property available to smaller investors. Congress determined that a way for ordinary investors to invest in large scale commercial properties was the exact same way they invest in different businesses, through the purchase of equity.

In precisely the exact same manner as investors benefit by owning shares of other corporations, the stockholders of a REIT make a pro-rata share of the economic benefits that derive from the production of income through commercial real estate ownership. REITs provide different advantages for investors: greater diversification through investing in a portfolio of properties as opposed to a single construction and management by experienced property professionals.

3. How Can a Company Qualify as a REIT?

In order for a company to qualify as a REIT, it must comply with specific provisions within the Internal Revenue Code. As required by the Tax Code, a REIT must:
Be an entity that is taxable as a corporation
Be handled by a board of directors or trustees
Have stocks that are fully transferable
Have a minimum of 100 shareholders
Have no more than 50 percent of its shares held by five or fewer individuals during the last half of the taxable year
Invest at least 75 percent of its total assets in real estate assets
Derive at least 75 percent of its gross income from rents from real estate land or interest on mortgages on real property
Have no more than 20 percent of its assets consist of stocks in taxable REIT subsidiaries
Pay annually at least 90 percent of its taxable income in the form of shareholder dividends

4. How Many REITs are There?

There are approximately 180 REITs registered with the Securities and Exchange Commission in America. Their assets total over $300 billion. As of December 31, 2002, about two-thirds of those traded on the major national stock exchanges:
New York Stock Exchange — 139 REITs
American Stock Exchange — 30 REITs
Nasdaq National Market System — 7 REITs
Additionally, there are several REITs that aren’t traded on a stock market.

5. What Types of REITs are There?

The REIT industry has a varied profile, which provides many different investment opportunities to investors. REIT industry analysts frequently classify REITs in one of 3 classes: equity, mortgage or hybrid vehicle.

Equity REITs

Equity REITs own and operate income-producing property. Equity REITs have become primarily property operating companies which engage in a wide assortment of property activities, such as leasing, development of real property and tenant solutions. 1 big distinction between REITs and other real estate companies is that a REIT must acquire and develop its properties primarily to operate them within its portfolio rather than to resell them when they are developed.

Mortgage REITs

Mortgage REITs lend money directly to property owners and operators or expand credit through the purchase of loans or mortgage-backed securities. Today’s mortgage REITs generally extend mortgage credit only on existing properties. Many contemporary mortgage REITs also manage their interest rate risk with securitized mortgage investments and dynamic hedging methods.

Hybrid REITs

As its name implies, a hybrid REIT both possesses properties and makes loans to property owners and operators.

Private REITs

Although most REITs trade on an established securities market, there’s absolutely not any need that REITs be publicly traded businesses. REITs that aren’t listed on an exchange or traded over-the-counter are known as”personal” REITs.

There are three typical types of private REITs:

(1) REITs targeted to institutional investors who take large financial positions;
(2) REITs which are syndicated to investors as part of a bundle of services offered by a financial advisor (a few of them have more than 500 shareholders and must file statements with the Securities and Exchange Commission just like publicly traded companies); and
(3)”incubator” REITs which are financed by venture capitalists together with the anticipation that the REIT will create a sufficient track record to establish a public offering in the future.

REITs are usually ordered in one of three ways: Conventional, UPREIT and DownREIT. A conventional REIT is one which owns its resources directly instead of through a working partnership.

In the Normal UPREIT, the spouses of an Existing Partnership and a REIT become partners in a new venture termed the Operating Partnership. For their various interests in the Operating Partnership (“Units”), the partners contribute the properties in the Existing Partnership and the REIT contributes the money. The REIT generally is the general partner and the vast majority owner of the Operating Partnership Units.

After a period of time (often one year), the spouses may enjoy the exact same liquidity of the REIT shareholders by tendering their Units for cash or REIT shares (at the option of the REIT or Operating Partnership). This conversion may result in the partners incurring the tax deferred in the UPREIT’s formation. The Unitholders may tender their Units within a time period, thereby spreading such tax. Additionally, when a spouse holds the Units until death, the estate tax rules operate in a such a manner as to provide that the beneficiaries may tender the Units for cash or REIT shares without paying income taxes.
A DownREIT is structured much as an UPREIT, but the REIT owns and operates properties aside from its interest in a controlled partnership that owns and operates separate possessions.

6. What Types of Properties do REITs Invest in?

REITs invest in various property types: shopping centers, apartments, warehouses, office buildings, hotels, and many others. Some REITs specialize in 1 property type only, such as shopping malls, self-storage facilities or factory outlet shops. Health care REITs specialize in medical care facilities, including acute care, rehabilitation and psychiatric hospitals, medical office buildings, nursing homes and assisted living facilities.

Some REITs invest throughout the nation or in some other countries. Others specialize in one region only, or even one metropolitan area.

7. Who Determines a REIT’s Investments?

A REIT’s investments are determined by its board of directors or trustees. Like other publicly traded firms, a REIT’s directors are elected by, and accountable to, the shareholders. Subsequently, the directors appoint the management employees. Like other corporations, REIT supervisors are generally well-known and honored members of the real estate, business and professional communities.

8. How are REITs Managed?

Such as other public companies, the corporate officers and professionals who manage REITs are liable to both their boards of directors in addition to their shareholders and lenders. Many REITs became public companies over the previous 10 decades, frequently shifting to public ownership what formerly had been private enterprises. Oftentimes, the majority owners of these private enterprises became the senior officers of the REIT and rolled their ownership positions into stocks of the new public companies. Therefore, the senior management teams of several REITs today own a substantial part of the provider’s stock, which helps to align the financial interests of management with shareholders.

9. How do REITs Quantify Financial Performance?

Like the rest of corporate America, the REIT industry believes net earnings as defined under Generally Accepted Accounting Principles (GAAP) are the principal operating performance measure for real estate businesses.

The REIT industry also uses Funds From Operations (FFO) as a supplemental measure of a REIT’s operating performance. NAREIT defines FFO as net income (calculated in accordance with GAAP) excluding gains or losses from sales of the majority of property and depreciation of property. When real estate businesses use FFO in public releases or SEC filings, the legislation requires them to reconcile FFO to GAAP net income.
Many real estate professionals in addition to investors think that commercial property maintains residual value to a far greater extent than machines, computers or other private property. Thus, they believe the depreciation measure utilized to arrive at GAAP net income generally overstates the economic depreciation of REIT property assets and the real cost to keep and replace those assets over time, which may actually be appreciating. Thus, FFO excludes property depreciation charges from regular operating performance. Many securities analysts estimate that a REIT’s performance based on its Adjusted FFO (AFFO), thereby devoting certain recurring capital expenses from FFO.

NAREIT’s April 2002″White Paper” on FFO discusses the definition of detail, advises REITs to adopt particular computational and disclosure practices and urges that REITs disclose additional information regarding other financial calculations including details about capital expenditures.

10. How can Shareholders Treat REIT Distributions for Tax Purposes?

REITs are required by law to distribute annually to their shareholders at least 90 percent of their taxable income. Thus, as investments, REITs tend to be one of those companies paying the greatest dividends. The dividends come primarily in the relatively stable and predictable flow of contractual rents paid by the tenants that occupy the REIT’s properties. Since rental prices tend to rise during times of inflation, REIT dividends are usually guarded in the long-term corrosive impact of rising costs.

For REITs, dividend distributions for tax purposes are allocated to ordinary income, capital gains and return of capital, each of which could be taxed at a different speed. All public companies, including REITs, need to provide their shareholders early in the year with information clarifying how the prior year’s dividends must be allocated for tax purposes. This information is distributed by each company to its list of shareholders on IRS Form 1099-DIV. An historical record of the allocation of REIT distributions involving average income, return of capital and capital gains are seen in NAREIT’s web site, www.nareit.com.

A return of capital distribution is defined as that area of the dividend which exceeds the REIT’s taxable income. Because property depreciation is such a large non-cash investment that may overstate any decrease in property values, the dividend rate divided by Funds From Operations (FFO) or Adjusted Funds From Operations (AFFO) is used by many as a step of the REIT’s ability to pay dividends.

A return of capital distribution isn’t taxed as ordinary income. Instead, the investor’s cost basis in the stock is decreased by the amount of the distribution. When shares are sold, the excess of the net sales price over the reduced tax basis is treated as a capital gain for tax purposes. As long as the suitable capital gains rate is less than the investor’s marginal ordinary income tax rate, a high yield of capital distribution might be particularly appealing to investors in higher tax brackets.

11. What Real Estate Fundamentals Should I Consider Before Purchasing?

REIT investors frequently compare current stock prices to the net asset value (NAV) of a provider’s assets. NAV is the per share measure of the market value of a business’s net assets. Occasionally, the stock price of a REIT could be more or less than its NAV. Investors must understand some of the basic factors that influence the value of a REIT’s property holdings. 1 critical element is how well balanced the distribution of new buildings is with the demand for new space. When building adds new space into a marketplace more quickly than it can be consumed, building vacancy rates increase, rents can weaken and property values decrease, thereby depressing net asset values.

In a strong market, growth in employment, capital investment and household spending increase the demand for new office buildings, apartments, industrial facilities and retail shops. Population growth also boosts the demand for flats. However, the economy isn’t always equally strong in all geographic regions, and economic growth may not raise the requirement for all property types in exactly the exact same time. Therefore, investors should compare the locations of properties of different businesses with the relative strength or weakness of property markets in those places.
Information on business properties can be obtained at their Web sites, while information on local and regional property markets can be obtained in the financial press or in research sites on the Internet such as www.lendlease.com or www.tortowheatonresearch.com.

12. How has Real Estate Financing Changed Over Time?

Historically, income-producing commercial property frequently was funded with high levels of debt. Properties supplied tangible security for mortgage funding, and the rental income from these properties was a definite source of revenue to cover the interest cost on the loan. Property markets often were dominated by programmers or entrepreneurial businessmen who had been trying to build personal fortunes and that were eager to undertake huge risks to achieve that. Before the real estate downturn of the early 1990s, it wasn’t unusual for individual properties to take mortgages that represented over 90 percent of their properties’ estimated market value or cost of building. Sometimes, loan-to-value ratios went even higher. The severe real estate recession of the early 1990s forced many property lenders, owners and developers to rethink the suitable use of debt financing on real estate projects.

Nowadays, properties owned by REITs are financed on a far more conservative foundation. Normally, REITs are funding their jobs with about half debt and half equity, which considerably reduces interest rate exposure and makes a much stronger business performance. Two-thirds of those REITs with senior unsecured debt ratings are investment grade.

13. How are REIT Stocks Valued?

Like all companies whose shares are publicly traded, REIT stocks are priced daily in the marketplace and give investors a chance to appreciate their portfolios daily.

To assess the investment value of REIT stocks, average analysis involves one or more of these criteria:

  • Management caliber and corporate structure
  • Anticipated total yield from the stock, estimated from the expected price change and the prevailing dividend yield
  • Present dividend yields relative to other yield-oriented investments (e.g. bonds, utility stocks and other high-income investments)
  • Dividend payout rates as a percentage of REIT FFO
  • Anticipated increase in earnings per share
  • Underlying asset values of the actual estate or mortgages, and other resources.

14. What Factors Contribute to REIT Earnings?

Growth in earnings typically comes from several sources, including higher revenues, lower costs and new business opportunities. The most immediate sources of earnings growth are higher rates of building occupancy and raising rents. Provided that the demand for new properties remains well balanced with the available supply, market rents tend to grow as the market expands. Low prices in under-utilized buildings may be increased when proficient owners update facilities, improve building services and more effectively market properties to new kinds of tenants. Property acquisition and development plans also create growth opportunities, given the financial returns from such investments exceed the expense of financing. As with other public companies, REITs and publicly traded real estate firms also increase earnings by improving efficiency and taking advantage of new business opportunities.

The REIT Modernization Act (RMA), which took effect on January 1, 2001, provides REITs with different opportunities to increase earnings. Before the enactment of the RMA, REITs were limited to providing only those services which were long accepted as being”usual and customary” landlord services, and were restricted from providing more cutting edge services offered by other landlords. The RMA allows REITs to create subsidiaries that may offer the competitive solutions that many of the tenants want.

15. Who Invests in REITs?

Tens of thousands of individual investors, both U.S. and non-U.S., own stocks of REITs. Other typical buyers of REITs are pension funds, endowment funds and foundations, insurance companies, bank trust departments and mutual funds.
Investors typically are drawn to REITs due to their high levels of current income and the chance for moderate long-term expansion. These are the basic features of real estate. Additionally, investors searching for ways to diversify their investment portfolios beyond other common stocks in addition to bonds are drawn to the distinctive characteristics of REITs.

Today, a wide assortment of investors are using REITs to help achieve their investment targets, from large pension funds seeking diversification to the retired school teacher looking for a high-quality revenue investment.
REIT shares typically may be bought on the open market, with no minimum purchase required. Many investors also are opting to have REITs through mutual funds or exchange traded funds that focus on public real estate companies.

16. Why Should I Invest in REITs?

REITs are complete return investments. They typically offer high dividends in addition to the prospect of medium, long-term capital appreciation. Long-term total returns of REIT stocks will probably be somewhat less than the yields of high-growth stocks and marginally more than the yields of bonds.

Since most REITs have a small-to-medium equity market capitalization, their yields must be comparable to other small to midsize businesses.
There’s a relatively low correlation between REIT and publicly traded real estate stock returns and the returns of other market sectors. Therefore, including REITs and publicly traded real estate stocks on your investment plan helps build a diversified portfolio.

REITs offer investors:

  • Present, stable dividend income
  • High dividend yields
  • Dividend growth that has surpassed the rate of consumer price inflation
  • Liquidity: stocks of publicly traded REITs are easily converted to cash because they are traded on the major stock exchanges
  • Professional management: REIT managers are skilled, experienced property professionals
  • Portfolio diversification, which reduces risk
  • Performance monitoring: a REIT’s performance is monitored on a regular basis by independent directors of the REIT, independent analysts, independent auditors, the Securities and Exchange Commission and the business and financial media. This evaluation provides the investor a measure of security and over 1 barometer of the REIT’s financial condition

17. What Role do REITs Perform in 401(k) Plans?

Many 401(k) plans provide many different stock and bond investment choices. However, property is largely non-existent in the majority of the defined contribution plans. Real estate stocks’ competitive rates of return, steady levels of risk, and low correlation with the investment yields of other stocks and bonds provide significant diversification benefits to a multi-asset portfolio. Participants and sponsors should be certain their 401(k) plans include actual estate, one of the most powerful sources of portfolio diversification among their investment decisions. Historically, institutional investors have invested in broadly diversified portfolios of numerous investments, fulfilling their plan liabilities while controlling the risk of catastrophic losses in any 1 year. Individual investors may not realize the significance of this investment idea.

Ibbotson Associates, a leading authority on asset allocation examined the historical investment performance of the publicly traded equities of real estate companies to decide whether REITs provide meaningful diversification benefits in diversified portfolios. Ibbotson found that, historically, REITs have earned competitive returns and exhibited lower volatility than other kinds of stocks. Ibbotson also discovered that REIT returns are relatively uncorrelated with those of other stocks and bonds. In actuality, as the whole equity market capitalization of REITs increased and the firms attained wider analytical coverage from Wall Street analysts, the correlation of REIT returns with those of other investments declined appreciably. As a consequence of these investment attributes, the Ibbotson analysis shows that REITs are a powerful source of portfolio diversification, increasing returns and lowering risk in a broad assortment of diversified portfolios.

By way of example, the analysis by Ibbotson found that allocating 10 percent of your portfolio to REITs every year from 1972 to 2001 could have boosted the average yearly yield from 11.3 percent to 11.5 percent while reducing portfolio risk from 10.9 percent to 10.5 percent. Allocating 20 percentage points to REITs could have boosted average yearly yield to 11.7 percent while reducing portfolio risk to 10.2 percent.

18. If I Own a House, do I Need to Invest in REITs?

REIT investing complements homeownership. While owning a home can be a fantastic investment, the investment advantages are enhanced when combined with REIT stocks.
Significantly, homeownership differs from additional investments in certain substantial ways. A home is a cost as much as it’s an investment, especially when funded with a mortgage that is sizable. It doesn’t produce current income, but instead requires monthly mortgage interest payments and other occasional expenses to be correctly maintained.
A widely-used indicator of single-family home prices nationally gained 5.7 percent annually on average from 1976 to 2001. Equity REITs, meanwhile, produced a 6.1 percent annual average yield on a price-only foundation, but with dividends reinvested, REITs’ average annual total return for its length was 15.2 percent.

The reduced correlation between REIT returns and home prices, combined with the attractive total return and moderate volatility of REITs, make it no surprise that REITs appear in the best portfolios estimated for both homeowners and tenants. In the last analysis, investors may have the ability to build greater long-term financial wealth when they unite homeownership and REIT stocks as part of a diversified investment portfolio.

19. What Should I Look for When Purchasing in a REIT?

The industry usually rewards businesses that demonstrate consistent earnings and dividend growth with greater price-earnings multiples. Thus, investors should look for REITs and publicly traded real estate companies with the following attributes:
A proven ability to increase earnings in a trusted manner. By way of instance, start looking for companies with properties where rents are below current market levels. Such properties offer upside potential in equilibrium markets and downside protection when economic growth slows.

Management teams able to rapidly and efficiently reinvest available cash flow. The capacity to consistently complete new projects on time and within budget. Creative management teams with solid strategies for creating new revenue opportunities under the REIT Modernization Act. Strong working features, including powerful corporate governance processes, conservative leverage, broadly accepted accounting practices, strong tenant relationships and a clearly defined working strategy for success in competitive markets.

20. How Can I Invest in a REIT?

A person can invest in a publicly traded REIT, which ordinarily is recorded on a major stock market, by buying shares through a stockbroker. An investor can enlist the assistance of a broker, investment advisor or financial planner to help assess their financial objectives. These professionals may have the ability to recommend appropriate REIT investments for the investor. An investor can also contact a REIT right to get a copy of the business’s annual report, prospectus and other financial details. Much of this information can be found on a organization’s web site.

The NAREIT website, www.nareit.com, also lists all publicly traded REITs using their trade symbols. Many regional libraries offer a wide assortment of books which provide investment research and data on public companies such as REITs.

Another choice is to increase your investment further by purchasing shares in a mutual fund that specializes in investing in real estate securities. A list of these mutual funds is available at the NAREIT web site. Investors can compare and assess the performance of mutual funds through public data sources like Morningstar, Inc., which may also be found in many regional libraries. These sources can provide detailed information on past performance, current portfolio holdings and information dealing with the many expenses of investing in funds. Additionally, there are a variety of real estate and REIT exchange traded funds and closed end funds.

21. How are REITs Different from Limited Partnerships?

REITs aren’t partnerships, though, as is the case with other businesses, REITs use partnerships to participate in joint ventures. There are significant organizational and operational differences between REITs and limited partnerships.

One of the significant differences between REITs and limited partnerships is the way that annual tax information is reported to investors. Annually, an investor at a REIT receives a conventional IRS Form 1099 in the REIT, indicating the amount and type of income received during the previous tax year. However, an investor in a venture receives a more complex IRS Program K-1 which must be supplied to taxpayers later in the year than a 1099. Additionally, a REIT investor must file fewer state tax returns than demanded by a venture investment. The corporate governance characteristics of a REIT are thought to be far superior to those of a partnership. Other significant differences between REITs and limited partnerships are outlined in the accompanying graph.

Glossary of Terms

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Adjusted Funds From Operations (AFFO) A computation made by analysts and investors to measure a real estate company’s cash available for distribution to shareholders. AFFO is generally calculated by subtracting from Funds from Operations (FFO) (see Funds From Operations) both (1) normalized recurring expenditures that are capitalized by the REIT and then amortized, but which are necessary to maintain a REIT’s properties and its revenue stream (e.g., new carpeting and drapes in apartment units, leasing commissions and tenant improvement allowances) and (2) “straight-lining” of rents.

Amortization The liquidation of financial debt using periodic payments of principle.

Blind Pool A commingled real estate fund accepting investor capital without prior specification of property assets.

Book Value The net value of a company’s assets less its liabilities, as reflected on its balance sheet pursuant to GAAP (see Generally Accepted Accounting Principles). Book value will reflect depreciation and amortization, which are expensed for accounting purposes.

C-Corporation A typical corporation organized under the provisions of “Subchapter C” of the Internal Revenue Code which may be publicly or privately held. It is required to pay taxes on its net taxable income, at the prescribed corporate tax rates in effect, and its shareholders also are required to pay income tax on any dividends they receive.

Capital Gain The amount by which the net proceeds from resale of a capital item exceed the book value of the asset.

Capital Markets Public and/or private markets where businesses or individuals attempt to obtain debt or equity capital.

Capitalization Rate The capitalization rate (“cap rate”) is the rate at which net operating income is discounted to determine the value of a property. It is one method that is utilized to estimate property value. Generally, higher cap rates indicate higher expected returns and higher perceived risk.

Cash Available for Distribution (CAD) Another name for Adjusted Funds From Operations that is no longer widely in use.

Cash Flow With reference to a property (or group of properties), the owner’s rental revenues from the property less all property related operating expenses. The term ignores depreciation and amortization expenses, as well as interest on loans incurred to finance the property. Cash flow sometimes is referred to as “earnings before interest, taxes, depreciation and amortization” or EBITDA.

Collateralized Mortgage Obligation (CMO) A securitization structure whereby real estate mortgages are pooled and re-sold in the form of two or more participating interests.

Commercial Mortgage Backed Securities (CMBS) Securities collateralized by mortgage loans on commercial real estate.

Common Equity Market Capitalization The market value of a company’s common stock. Obtained by multiplying the number of common shares outstanding by the market value of the shares.

Cost of Capital The cost to the company of raising capital in the form of equity or debt.

Depreciation A decrease or loss in property value due to wear, age or other factors. In accounting, depreciation is a periodic allowance made for this real or implied loss.

Dividend Yield The annual current dividend rate for a security expressed as a percent of its market price.

DownREIT Structured much like an UPREIT, except in a DownREIT, the operating partnership is subordinate to the REIT itself.

EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization.

Equity REIT A REIT that primarily owns, or has an equity interest in, income-producing commercial real estate.

Equitization The process by which the economic benefits of ownership of a tangible asset, such as real estate, are divided among numerous investors and represented in the form of publicly-traded securities.

Externally Advised REIT A REIT that uses an advisor for services relating to administration or screening markets or potential properties. Fees are paid to the advisor, usually based on cash flows or assets managed.

Funds Available for Distribution (FAD) Another name for Adjusted Funds From Operations that is no longer widely in use.

Funds From Operations (FFO) FFO is the most commonly accepted and reported measure of a REIT’s operating performance. It is equal to a REIT’s net income, excluding gains or losses from sales of property, and adding back real estate depreciation.

Generally Accepted Accounting Principles (GAAP) Rules for reporting financial transactions and performance and overseen by the Financial Accounting Standards Board (FASB).

Historical Cost The total amount of equity and debt used to acquire real estate investments, including the gross purchase price, all acquisition fees and costs, plus subsequent capital improvements, less proceeds from sales and partial sales.

Hybrid REIT A REIT that both owns commercial real estate and holds mortgages secured by commercial real estate, combining the investment strategies of both Equity and Mortgage REITs.

Implied Common Equity Market Capitalization The market value of a company’s common stock plus its common operating partnership units (“OP Units”). Obtained by multiplying the number of common shares plus common OP Units outstanding by the market value of the common shares.

Income Property Real estate owned or operated to produce revenue.

Income Return In reference to investment performance, the income return is the portion of the total return derived from dividend distributions.

Interest Coverage Ratio A measure to gauge a company’s ability to meet its debt interest obligations. Usually computed as the ratio of EBITDA to interest expense.

IRS Form 1099-DIV An annual report distributed to the shareholders by all publicly traded companies detailing the tax treatment of dividend distributions in the prior year for the purpose of calculating personal income taxes.

Leverage The practice of using borrowed funds or debt capital to increase the book value of assets above the book value of equity and to boost the rate of return on the amount of invested equity capital.

Liquidity The ability to convert assets into cash without appreciable loss in value. Higher liquidity implies greater ease of transferability, whereas lower liquidity indicates greater difficulty.

Mortgage REIT A REIT that originates or acquires mortgage loans and other debt obligations that are secured by real property.

Net Asset Value (NAV) The net “market value” of a company’s assets, including but not limited to its properties, after subtracting all of its liabilities and obligations. Total net asset value often is divided by the total number of common shares outstanding to compute basic net asset value per share.

Operating Partnership Unit (OP Unit) Equity interests in an Umbrella Partnership REIT (UPREIT).

Payout Ratio The ratio of a REIT’s current annual dividend rate per share divided by its annual FFO per share.

Positive Spread Investing The acquisition of real estate assets that provide initial returns that significantly exceed the company’s marginal cost of capital.

Price Return In reference to investment performance, the price return is that portion of the total return that measures the change in share price.

Rating Agencies Independent firms which rate the financial creditworthiness of securities for the benefit of investors. The major rating agencies are Fitch IBCA Duff & Phelps, Moody’s Investor Services and Standard & Poor’s.

Real Estate Investment Trust Act of 1960 The federal law that authorized REITs. Its purpose was to allow small investors to pool their investments in commercial real estate in order to obtain the same economic benefits as might be obtained by direct ownership, while also diversifying their risks and obtaining professional management.

Real Estate Investment Trust (REIT) A REIT is a corporation or business trust that combines the capital of many investors to acquire or provide financing for all forms of income-producing real estate. A REIT generally is not required to pay corporate income tax if it distributes at least 95 percent of its taxable income to shareholders each year. (The distribution requirement was reduced to 90 percent effective January 1, 2001.)

Real Estate Mortgage Investment Conduit (REMIC) A product of the Tax Reform Act of 1986, REMICs are intended to hold a pool of mortgages for the exclusive purpose of issuing multiple classes of mortgage-backed securities in a way that avoids a corporate double tax. Most CMBS transactions are structured as REMICs.

Real Estate Operating Company (REOC) A company whose primary business is the ownership and/or operation of commercial real estate properties, but which has not elected to be taxed as a REIT.

Securitization The process of financing a pool of similar but unrelated financial assets (usually loans or other debt instruments) by issuing to investors security interests representing claims against the cash flow and other economic benefits generated by the pool of assets.

Straight-Lining Real estate companies “straight-line” rents because generally accepted accounting principles require it. Straight lining averages the tenant’s rent payments over the life of the lease.

Tax Reform Act of 1986 Federal law that substantially altered the real estate investment economy by permitting REITs not only to own, but also to operate and manage, most types of income-producing commercial properties. It also stopped real estate “tax shelters” that had attracted capital from investors based on the amount of losses that could be created.

Total Market Capitalization The total value of a company’s capital, including the market value equity and all debt.

Total Return In reference to investment performance, a stock’s dividend income plus capital appreciation over a specified period as a percent of the stock price at the beginning of the period, before taxes and commissions.

Umbrella Partnership REIT (UPREIT) In the typical UPREIT, the partners of one of more existing partnerships and a newly formed REIT become partners in a new partnership termed the Operating Partnership. For their respective interests in the Operating Partnership (“OP Units”), the partners contribute the properties from the existing partnerships and the REIT contributes the cash proceeds from its public offering. The REIT typically is the general partner and the majority owner of the Operating Partnership.

After a period of time (often one year), the partners may enjoy the same liquidity of the REIT shareholders by tendering their OP Units for either cash or REIT shares (at the option of the REIT or Operating Partnership). This conversion may result in the partners incurring the tax liability deferred at the UPREIT’s formation. The Unitholders may tender their OP Units over a period of time, thereby spreading out such tax. In addition, when a partner holds the OP Units until death, the estate tax rules operate in a such a way as to provide that the beneficiaries may tender the OP Units for cash or REIT shares without paying income taxes.

Volatility The extent to which a security’s price fluctuates in the market, often measured as the standard deviation of returns.

Yield Spread The difference in yield between two different securities, usually of different credit quality.