Adding Real Estate To
Your Portfolio

However, the Tax Reform Act of 1986 (TRA '86) changed all that in two important ways. First, by reducing interest deductions and increasing depreciation periods, TRA '86 reduced tax shelter opportunities that had been offered by direct ownership of real estate, thus making REITs more appealing to investors. Second, the new law empowered REITs by permitting them not only to own income-producing real estate, but also to operate and manage it, thereby placing shareholder interests on par with those of REIT operators and managers.

Investor Benefits And Risks

The public market for real estate investment trusts offers investors a level of liquidity that often is difficult to achieve with direct ownership of real estate. More than 200 REITs are publicly-traded and generally can be bought and sold as easily as stock. Consequently, REITs have become popular among investors seeking liquidity in commercial property investment. According to NAREIT, over 70 percent of the REITs currently operating in the United States trade on the national stock exchanges. The New York Stock Exchange (NYSE), with 164, lists the largest number of REITs, followed by the American Stock Exchange (AMEX) with 29, and the NASDAQ Market with 17.