Is it time to say "right on" for REIT exchange traded funds (ETFs) yet?

After a bumpy ride in 2007, the REIT ETFs are showing signs of life this spring, reports Billy Fisher for The Street.

REIT stands for real estate investment trust. It sells like a stock on major exchanges and invests in real estate directly through either mortgages or properties. This is a very liquid way to invest in real estate, and while they offer high yields, they are also known for special tax treatment, according to Investopedia. By investing in REITs, you are participating in a liquid, dividend-paying method in the real estate market.

Two REIT ETFs in particular are the Vanguard REIT Index (VNQ), up 7.6% year-to-date,and the Dow Jones Wilshire REIT (RWR), up 7.4% year-to-date. Analysts seem to agree that the funds may have "turned the corner," but that we are far from out of the woods yet.

The ETFs do offer dividend yields around 5%, and boast the highest dividend yields for ETFs available on the market. A pullback in new construction starts, lower interest rates and healthy occupancy rates in many markets are beneficial to these funds.

One risk of these funds is the varying outlooks for the different classes of REITs and even for the individual companies in those classes. For example, one company will benefit from the tight office space market in Manhattan, while another could be hurt by the growing empty office space in Orange County, CA.

Z_3

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.