Mortgages Blog

Finance Blogs » Mortgages » Invest in a mortgage REIT?

Invest in a mortgage REIT?

By Judy Martel · Bankrate.com
Tuesday, February 4, 2014
Posted: 11 am ET

Now that the housing market has shown some strength, investors seeking yield might consider buying mortgage real estate investment trusts, or REITs. But these are not straightforward investments and buyers could get burned if they don't understand what makes mortgage REITs tick.

Mortgage REITs, which invest primarily in mortgage bonds, although they trade like equities, should be thought of as part of your fixed-income portfolio, says Barry Taylor, financial planner with Integral Financial Solutions in San Francisco. As such, they have all the risks associated with fixed income.

Two main risks of REITs

"The risk with any fixed-income product is interest rate risk," Taylor says, and mortgage rates are rising. Over the past several months, shares of mortgage REITs have fallen as investors worry about the Federal Reserve's tapering of its bond-buying program.

"The other risk is quality risk," says Taylor. "A lot of mortgage REITs are in the junk-bond category and investors are getting paid to take the risk." Junk bonds typically pay a higher rate because there is a higher risk of default.

Open the hood, check for leaks

While higher yields may look attractive in this low-rate environment, investors need to do their due diligence before buying to really see what's in the REIT, says Taylor. Mortgage REITs could hold a lot of lower-quality debt with a higher risk of default. "The bottom line is that you should look at them more closely if the yield is higher."

"Small" bets for rich people

For wealthier investors who can afford to make a bet, Taylor would suggest putting aside a small amount for risky investments such as a mortgage REIT. "People are always looking for the big buy and more yield," Taylor says. "The key to any strategy is, don't bet the farm on it."

Keep up with your wealth and mortgages and follow me on Twitter @JudyMartel.

«
»
Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
1 Comment
MOUSA
February 06, 2014 at 5:26 pm

dear seir HI if you like financer for gas and petrol in iran ihave for you aexllant project call me 00989121953092 thanks mousa

Add a comment

(Comments may take 5-10 minutes to appear)