REITs make income-producing real estate accessible through shares, but accessibility doesn't mean simplicity — and a handful of recurring mistakes trip up investors again and again. The most common errors aren't exotic; they're predictable: reaching for the highest headline yield without checking whether the payout is sustainable, overlooking a REIT's debt load and maturity schedule, piling into a single property sector, treating REITs as simple bond proxies and misjudging their rate sensitivity, and overpaying by buying at a steep premium to net asset value. Each of these mistakes has a better-decision counterpart — a habit or check that turns the error into discipline. This guide walks through five common REIT investing mistakes and the lessons that counter them, then adds a practical look at how a checklist ties them together. Note that this is educational information, not investment advice, and past performance does not guarantee future results — verify the current rules and specifics with your advisors.
Chasing the Highest Yield
The single most common REIT mistake is chasing the highest headline yield. Because REITs distribute most of their income, yields are an obvious point of comparison — and it's tempting to assume that a REIT yielding 10% is simply a better income investment than one yielding 4%. But a very high yield is often a warning sign, not a bargain. When a REIT's share price has fallen because the market expects trouble — declining rents, rising vacancies, or an unsustainable payout — the yield mechanically rises even as the investment deteriorates. This is the classic 'yield trap.'
The better decision is to check whether the payout is actually covered by cash flow before being seduced by the number. The key test is AFFO coverage: compare the dividend per share to adjusted funds from operations (AFFO) per share. A payout ratio comfortably below 100% of AFFO suggests the distribution is funded by genuine cash flow and has room to be maintained; a ratio at or above 100% means the REIT is paying out more than it generates, which often precedes a cut. So a high yield should prompt the question 'why?' — not an automatic buy.
So chasing the highest yield is a trap because an elevated yield frequently signals distress or an unsustainable payout rather than a deal. Chasing the highest yield — assuming a higher headline yield is automatically better, when an elevated yield often reflects a falling share price that anticipates trouble or signals an unsustainable distribution (a 'yield trap') — is the most common REIT mistake. The better decision is to verify AFFO coverage: a payout ratio comfortably below 100% of AFFO suggests the dividend is funded by real cash flow, while a ratio at or above 100% often precedes a cut. So treat a very high yield as a question to investigate, not a bargain to grab. Sustainable income comes from covered distributions, not the biggest number.
A 10% yield isn't a reward for being smart — it's often the market telling you something is wrong. Always ask why the yield is high before you reach for it.
Ignoring Balance-Sheet Risk
A second common mistake is ignoring balance-sheet risk — focusing on yield and property quality while overlooking how the REIT is financed. REITs use leverage, and debt amplifies both returns and losses. A REIT with too much debt, poorly timed maturities, or heavy floating-rate exposure can be forced to refinance at higher rates, cut its dividend, or sell assets at the wrong time — even if its properties are sound. The balance sheet is where many REIT problems originate, yet it's the part investors most often skip.
The better decision is to read the balance sheet before buying. Useful checks include leverage ratios like debt-to-EBITDA (lower is generally safer), the debt maturity schedule (are large amounts coming due in the next year or two, when refinancing terms are uncertain?), the mix of fixed- versus floating-rate debt (floating-rate debt resets higher when rates rise), and interest-coverage ratios. A REIT with modest leverage, well-laddered maturities, and mostly fixed-rate debt is far better positioned to weather a rate shock than a highly levered peer with near-term maturities and floating-rate exposure.
So ignoring balance-sheet risk leaves you exposed to financing problems that yield and property quality alone won't reveal. Ignoring balance-sheet risk — overlooking leverage, debt-to-EBITDA, near-term maturities, and floating-rate exposure while focusing only on yield and properties — is a frequent and costly error, because debt amplifies losses and forced refinancing can trigger dividend cuts or asset sales. The better decision is to review leverage ratios, the maturity schedule, the fixed-versus-floating mix, and interest coverage before investing. A modestly levered REIT with laddered, mostly fixed-rate debt is more resilient than a highly levered one with near-term floating maturities. So make the balance sheet a required part of your REIT homework, not an afterthought.
Over-Concentrating in One Sector
A third mistake is over-concentrating in a single property sector. REITs span many sectors — residential, industrial, office, retail, healthcare, data centers, self-storage, and more — and each behaves differently across economic cycles and secular trends. An investor who, intentionally or not, ends up holding only office REITs, or only one favored sector, takes on concentrated risk: if that sector faces a structural headwind (as office did with remote work, or as some retail did with e-commerce), the entire allocation can suffer at once.
The better decision is to diversify across sectors so that a problem in one doesn't sink the whole REIT sleeve. This can mean holding REITs from several different property types, or — for many investors — using a broad REIT ETF or fund that spreads exposure across sectors automatically. Diversification doesn't eliminate risk, but it reduces the chance that a single sector's downturn dominates your outcome, and it lets you participate across the range of real estate demand drivers rather than betting on one. Concentration should be a deliberate choice, not an accident.
So over-concentrating in one sector exposes you to a single set of demand drivers, magnifying the impact of any sector-specific shock. Over-concentrating in one sector — holding only office, only one property type, or otherwise stacking exposure in a single REIT sector, when different sectors behave very differently across cycles and secular trends — is a common error that magnifies sector-specific risk. The better decision is to diversify across sectors, whether by holding several property types or by using a broad REIT ETF that spreads exposure automatically. Diversification reduces the chance that one sector's downturn dominates your results. So make concentration a deliberate, sized bet rather than an unnoticed accident, and spread real estate exposure across demand drivers.
- Chasing the highest yield is the most common mistake — an elevated yield often signals trouble or an unsustainable payout, so check AFFO coverage first.
- Ignoring balance-sheet risk leaves you exposed to leverage, near-term maturities, and floating-rate debt — review the financials before buying.
- Over-concentrating in one sector magnifies sector-specific shocks; diversify across property types or use a broad REIT fund.
- Misjudging rate sensitivity and overpaying versus NAV are the other two pitfalls — understand rate impact and avoid steep premiums to net asset value.
Misjudging Rate Sensitivity
A fourth common mistake is misjudging how REITs respond to interest rates — usually in one of two opposite ways. Some investors treat REITs as simple bond proxies, expecting a steady, bond-like income stream and being surprised when share prices swing with the equity market and the rate cycle. Others ignore rate sensitivity entirely, overlooking how rising rates can pressure REIT valuations (higher discount rates and borrowing costs) and weigh especially heavily on rate-sensitive mortgage REITs. Both errors stem from not understanding the relationship clearly.
The better decision is to understand REITs as rate-sensitive equities, not bonds. REITs do pay substantial income, but they are stocks whose values respond to rents, occupancy, growth, and capital markets — and to interest rates, which affect both borrowing costs and the rates investors use to value future cash flows. Rising rates can pressure REIT prices, while falling rates often help; mortgage REITs are particularly sensitive because their profit is an interest-rate spread. Recognizing this lets you set realistic expectations, size the allocation appropriately, and avoid being whipsawed by treating a REIT as something it isn't.
So misjudging rate sensitivity — whether by treating REITs as bonds or by ignoring rates altogether — leads to mismatched expectations and poor timing. Misjudging rate sensitivity — treating REITs as steady bond proxies (and being surprised by equity-like swings) or ignoring rate impact on valuations and borrowing costs altogether — is a frequent error rooted in misunderstanding the relationship. The better decision is to view REITs as rate-sensitive equities: they pay meaningful income but their values respond to rents, growth, capital markets, and interest rates, with mortgage REITs especially sensitive because their profit is a rate spread. Understanding this sets realistic expectations and informs sizing. So don't mistake a REIT for a bond, and don't ignore rates — recognize REITs as income-oriented equities sensitive to the rate cycle.
A REIT is not a bond with a higher yield. It is a rate-sensitive equity that pays a lot of income — and confusing the two is how investors get surprised.
Overpaying vs. NAV
A fifth mistake is overpaying — buying a REIT at a steep premium to its net asset value (NAV). NAV estimates the per-share value of a REIT's real estate net of its liabilities, and a traded REIT's share price can trade above (a premium) or below (a discount) that estimate. Paying a large premium means you're buying the underlying real estate for substantially more than its appraised worth, which raises your risk and lowers your expected return if the premium narrows. Investors who ignore valuation and simply 'buy the story' often overpay.
The better decision is to weigh price against value before buying. Compare the share price to estimates of NAV and to valuation multiples like price-to-FFO (the REIT equivalent of a P/E ratio). A REIT trading at a modest premium or a discount to NAV, with a reasonable P/FFO relative to peers and its own history, is generally a more disciplined purchase than one trading at a large premium on optimism alone. Valuation isn't a precise science — NAV is an estimate, and quality can justify some premium — but ignoring it entirely invites overpaying.
So overpaying versus NAV means buying real estate for more than it's worth, raising risk and capping return if the premium compresses. Overpaying versus NAV — buying a REIT at a steep premium to net asset value (the per-share value of its real estate net of liabilities), effectively paying far above the appraised worth of the underlying property — is a common valuation error that raises risk and lowers expected return. The better decision is to weigh price against value using NAV estimates and price-to-FFO multiples, favoring REITs at modest premiums or discounts with reasonable multiples over those priced on optimism alone. Valuation is imprecise, but ignoring it invites overpaying. So check what you're paying relative to NAV and FFO before buying, rather than chasing a story at any price.
Tying It Together: A Simple Checklist
Each of these mistakes shares a common cure: a short, repeatable checklist that forces you to look past the headline number before investing. Rather than reacting to a tempting yield or a compelling narrative, run a few standard questions every time. Is the distribution covered by AFFO, or is the high yield a trap? What does the balance sheet look like — leverage, maturities, fixed versus floating debt? Am I over-concentrated in one sector, or diversified across property types? Have I accounted for rate sensitivity in my expectations and sizing?
The final question ties valuation to all the rest: am I paying a reasonable price relative to NAV and FFO, or chasing a premium? A checklist won't make REIT investing risk-free — nothing does — but it converts the five common mistakes into five disciplined habits, and it keeps emotion and recency bias from driving decisions. Many investors find that simply using a broad, diversified, low-cost REIT fund neutralizes several of these pitfalls at once (sector concentration, single-name valuation risk), while a checklist still helps when evaluating individual REITs or sponsors.
So a simple, consistent checklist turns the five common mistakes into repeatable discipline. Tying it together — running a short checklist before every REIT decision (Is the payout AFFO-covered? How is the balance sheet? Am I diversified across sectors? Have I accounted for rate sensitivity? Is the price reasonable versus NAV and FFO?) — converts the five common mistakes into five disciplined habits and curbs emotion-driven choices. A broad, diversified, low-cost REIT fund can neutralize several pitfalls at once, while the checklist helps with individual names. So make the checklist a habit: it won't eliminate risk, but it keeps the predictable errors from repeating, which is most of the battle in REIT investing.
How Baker 1031 Helps You Avoid REIT Mistakes
Baker 1031 Investments helps investors avoid the most common REIT mistakes — chasing the highest yield, ignoring balance-sheet risk, over-concentrating in one sector, misjudging rate sensitivity, and overpaying versus NAV — by encouraging the disciplined checks that counter each one, so you can invest in REITs more deliberately and only when suitable for your goals.
REIT and non-traded-REIT interests and related securities are offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), and any recommendation follows a suitability review — non-traded and private REITs typically require accredited or otherwise suitable investors, while publicly traded REITs trade through ordinary brokerage accounts. We help you read a REIT's payout coverage and balance sheet, think about sector diversification and rate sensitivity, and weigh price against NAV and FFO, so the predictable errors don't repeat. Baker 1031 does not provide tax or legal advice; your CPA and attorney handle your specific tax situation, including how REIT dividends are taxed. Our guidance is educational and balanced — we never promise yields or returns, and past performance does not guarantee future results. REIT share prices, NAVs, and distributions all fluctuate. Our role is to help you understand these common mistakes clearly, apply the better-decision lessons, and invest in REITs only when they fit your goals and risk tolerance.
Frequently Asked Questions
What is the most common REIT investing mistake?
The most common REIT investing mistake is chasing the highest headline yield. Because REITs distribute most of their income, yields are an obvious comparison point, and it's tempting to assume a 10% yield is simply better than a 4% one. But a very high yield is often a warning sign rather than a bargain: when a REIT's share price falls because the market expects trouble — declining rents, rising vacancies, or an unsustainable payout — the yield mechanically rises even as the investment deteriorates. This is the classic 'yield trap.' The better decision is to check whether the payout is covered by cash flow, comparing the dividend to AFFO (adjusted funds from operations) per share; a ratio comfortably below 100% of AFFO suggests the distribution is sustainable. So treat a very high yield as a question to investigate, not an automatic buy. Sustainable income comes from covered distributions, not the biggest number on the screen.
What is a REIT yield trap?
A REIT yield trap is a situation where a REIT shows an unusually high dividend yield that looks attractive but actually signals trouble. Yield is the annual dividend divided by the share price, so when a REIT's share price falls sharply — often because the market anticipates declining rents, rising vacancies, refinancing problems, or an unsustainable payout — the yield rises mechanically even though the company is deteriorating. Investors who buy purely for the high yield can get 'trapped,' often suffering a dividend cut and further price declines shortly after. The way to avoid a yield trap is to check distribution coverage: compare the dividend per share to adjusted funds from operations (AFFO) per share. A payout ratio at or above 100% of AFFO means the REIT is paying out more than it generates, which often precedes a cut. So a high yield should prompt the question 'why is it so high?' rather than an automatic purchase, and AFFO coverage is the key test.
How do I check if a REIT dividend is sustainable?
To check whether a REIT dividend is sustainable, look at how well cash flow covers the payout rather than at the yield alone. The most useful measure is AFFO coverage: compare the dividend per share to adjusted funds from operations (AFFO) per share. AFFO refines funds from operations (FFO) by subtracting recurring capital expenditures and normalizing items, so it better approximates the cash actually available to pay distributions. A payout ratio comfortably below 100% of AFFO suggests the dividend is funded by genuine cash flow and has room to be maintained, while a ratio at or above 100% means the REIT is paying out more than it generates, which often precedes a cut. It's also worth checking trends — is AFFO growing or shrinking? — and the balance sheet, since a stretched REIT may cut its dividend to preserve cash. So sustainable distributions come from healthy AFFO coverage and a sound balance sheet, not from a high headline yield.
Why does balance-sheet risk matter for REITs?
Balance-sheet risk matters for REITs because REITs use leverage, and debt amplifies both returns and losses. A REIT with too much debt, poorly timed maturities, or heavy floating-rate exposure can be forced to refinance at higher rates, cut its dividend, or sell assets at the wrong time — even if its underlying properties are perfectly sound. Many REIT problems originate on the balance sheet, yet it's the part investors most often skip in favor of yield and property quality. Useful checks include leverage ratios like debt-to-EBITDA (lower is generally safer), the debt maturity schedule (are large amounts due in the next year or two?), the mix of fixed- versus floating-rate debt (floating debt resets higher when rates rise), and interest-coverage ratios. A REIT with modest leverage, well-laddered maturities, and mostly fixed-rate debt is far better positioned to weather a rate shock. So reviewing the balance sheet is essential REIT homework, not an afterthought.
What is debt-to-EBITDA for a REIT?
Debt-to-EBITDA is a leverage ratio that compares a REIT's total debt to its EBITDA (earnings before interest, taxes, depreciation, and amortization), giving a sense of how many years of cash earnings it would take to repay the debt. A lower ratio generally indicates a more conservative, resilient balance sheet, while a higher ratio signals greater leverage and more vulnerability to rising rates, refinancing risk, and downturns. There's no single 'right' number — appropriate leverage varies by property sector and strategy — but comparing a REIT's debt-to-EBITDA to its peers and its own history is informative. It's one of several balance-sheet checks worth running alongside the debt maturity schedule, the fixed-versus-floating debt mix, and interest coverage. Because debt amplifies losses, a REIT with high debt-to-EBITDA, near-term maturities, and floating-rate exposure carries more risk than a modestly levered peer. So debt-to-EBITDA is a quick gauge of leverage that helps you assess balance-sheet risk before investing.
Why is over-concentrating in one REIT sector a mistake?
Over-concentrating in one REIT sector is a mistake because different property sectors behave very differently across economic cycles and secular trends, so stacking all your exposure in one type magnifies sector-specific risk. REITs span residential, industrial, office, retail, healthcare, data centers, self-storage, and more. If you end up holding only office REITs, or only one favored sector, a structural headwind in that sector — as office faced with remote work, or some retail faced with e-commerce — can hit your entire allocation at once. The better decision is to diversify across sectors so a problem in one doesn't dominate your outcome. This can mean holding REITs from several property types or, for many investors, using a broad REIT ETF or fund that spreads exposure automatically. Diversification doesn't eliminate risk, but it reduces the chance a single sector's downturn drives your results. So make concentration a deliberate, sized choice rather than an unnoticed accident.
How do interest rates affect REITs?
Interest rates affect REITs in several ways, which is why misjudging rate sensitivity is a common mistake. Rising rates increase REITs' borrowing costs, since they refinance and issue debt to fund acquisitions and development. Rising rates also tend to raise the discount rates investors use to value future cash flows, which can pressure REIT share prices and property valuations. And because REITs compete with bonds for income-seeking investors, higher bond yields can make REIT yields look relatively less attractive, adding price pressure. Mortgage REITs are especially rate-sensitive because their profit is the spread between the interest they earn on mortgage assets and their cost of borrowing. Falling rates often have the opposite, supportive effect. The key is to understand REITs as rate-sensitive equities — not bonds — so you set realistic expectations and size your allocation appropriately. So don't ignore rates, and don't treat a REIT as a fixed bond; recognize it as an income-oriented equity influenced by the rate cycle.
Are REITs bond substitutes?
No — treating REITs as bond substitutes is a common mistake. REITs do pay substantial income because they distribute most of their taxable income, which makes them attractive to income-seeking investors. But REITs are equities, not bonds: their share prices fluctuate with the stock market, their distributions can be cut if income falls, and their values respond to rents, occupancy, growth, capital markets, and interest rates. A bond, by contrast, typically pays a fixed coupon and returns principal at maturity (subject to credit risk). Investors who buy REITs expecting bond-like stability are often surprised by equity-like volatility, especially during market sell-offs or rate shocks. The better way to think about REITs is as rate-sensitive equities that pay meaningful income — a hybrid in spirit, but firmly on the equity side in behavior. So while REITs can play an income role in a portfolio, they shouldn't replace high-quality bonds for investors who need stability, and their volatility and risk should be sized accordingly.
What does it mean to overpay versus NAV?
To overpay versus NAV means buying a REIT at a steep premium to its net asset value — paying substantially more per share than the estimated value of the REIT's real estate net of its liabilities. NAV estimates the per-share worth of the underlying property; a traded REIT's share price can trade above (a premium) or below (a discount) that figure. Paying a large premium means you're effectively buying the real estate for far more than its appraised value, which raises your risk and lowers your expected return if the premium later narrows. The better decision is to weigh price against value before buying, comparing the share price to NAV estimates and to multiples like price-to-FFO (the REIT version of a P/E ratio). A REIT at a modest premium or a discount with a reasonable P/FFO is generally a more disciplined purchase than one priced on optimism alone. So while quality can justify some premium, ignoring valuation entirely invites overpaying.
What is price-to-FFO?
Price-to-FFO (P/FFO) is a valuation multiple for REITs, calculated by dividing the share price by funds from operations (FFO) per share. It's the REIT equivalent of the price-to-earnings (P/E) ratio used for ordinary stocks. Because net income for REITs is distorted by large non-cash real estate depreciation, FFO — net income plus real estate depreciation and amortization, minus gains on property sales — is a more meaningful measure of a REIT's operating performance, and P/FFO is therefore a more meaningful valuation gauge than P/E. A lower P/FFO suggests a cheaper valuation relative to cash earnings, while a higher P/FFO suggests a richer one, though appropriate levels vary by sector, growth, and quality. Comparing a REIT's P/FFO to its peers and its own history helps you judge whether you're paying a reasonable price. So P/FFO is a key tool for avoiding the mistake of overpaying, used alongside NAV estimates to weigh price against value before buying a REIT.
Does using a REIT ETF help avoid these mistakes?
Yes — using a broad, diversified, low-cost REIT ETF or fund can neutralize several common REIT mistakes at once, which is why it's often a sensible default, especially for beginners. A diversified REIT fund spreads exposure across many REITs and property sectors, directly addressing the over-concentration mistake and reducing single-name valuation and balance-sheet risk, since no one REIT dominates the portfolio. It also removes the temptation to chase the highest-yielding individual name. A low-cost fund keeps fees modest, and professional index construction handles much of the diversification automatically. That said, a fund doesn't eliminate all the pitfalls: REITs as a group are still rate-sensitive and can fall in value, so misjudging rate sensitivity and overall sizing still matter, and even a fund can trade at rich valuations. So a broad REIT fund is a strong tool for sidestepping concentration and single-name errors, while a checklist still helps for understanding rate risk and sizing the overall allocation appropriately.
How can a checklist improve REIT decisions?
A checklist improves REIT decisions by forcing you to look past the headline yield or compelling story before investing, converting the common mistakes into repeatable discipline. Rather than reacting emotionally to a tempting number, you run the same standard questions every time: Is the distribution covered by AFFO, or is the high yield a trap? What does the balance sheet look like — leverage, maturities, fixed versus floating debt? Am I over-concentrated in one sector, or diversified across property types? Have I accounted for rate sensitivity in my expectations and sizing? Am I paying a reasonable price relative to NAV and FFO, or chasing a premium? A checklist won't make REIT investing risk-free — nothing does — but it curbs recency bias and emotion, which drive many poor decisions. So a short, consistent checklist turns the five common mistakes into five disciplined habits, keeping predictable errors from repeating, which is most of the battle in any kind of investing.
Are mortgage REITs riskier in this context?
Mortgage REITs (mREITs) can be riskier in the context of these mistakes, particularly around yield-chasing and rate sensitivity. Mortgage REITs don't own property; they finance real estate by holding mortgages and mortgage-backed securities, earning the spread between the interest those assets pay and their own cost of borrowing. Because their profit is an interest-rate spread, they are highly sensitive to rate changes, and they often offer higher yields than equity REITs — which makes them tempting for yield-chasers but more volatile and risk-prone. An investor reaching for a mortgage REIT's high yield without understanding its rate sensitivity and leverage can be hit hard when rates move against the spread or when the payout proves unsustainable. The better decision is to understand exactly what a mortgage REIT does, how leveraged it is, and how sensitive its earnings are to rates before investing, and to size the position accordingly. So mortgage REITs aren't inherently bad, but they concentrate several of these pitfalls and demand extra scrutiny.
Should I avoid high-yield REITs entirely?
Not necessarily — the lesson isn't to avoid all high-yield REITs, but to investigate why a yield is high before buying rather than assuming a bigger number is better. Some REITs legitimately offer higher yields because of their sector (mortgage REITs, for example, often yield more due to their rate-spread model and higher risk) or their stage and strategy, and a higher yield isn't automatically a trap. The key is sustainability: a high yield backed by healthy AFFO coverage and a sound balance sheet can be appropriate for an income-focused, risk-aware investor, while a high yield reflecting a falling price, a stretched payout, and balance-sheet stress is a warning sign. So evaluate each high-yield REIT on its coverage, leverage, and risk profile rather than chasing or shunning yield reflexively. Size higher-yield, higher-risk REITs as the riskier holdings they are. So the discipline is to ask 'why is this yield high, and is it covered?' — not to blanket-avoid or blanket-buy high yields.
How does Baker 1031 help me avoid REIT mistakes?
We help investors avoid the most common REIT mistakes — chasing the highest yield, ignoring balance-sheet risk, over-concentrating in one sector, misjudging rate sensitivity, and overpaying versus NAV — by encouraging the disciplined checks that counter each one, so you can invest more deliberately and only when suitable. REIT and non-traded-REIT interests are offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), and any recommendation follows a suitability review; non-traded and private REITs typically require accredited or otherwise suitable investors, while publicly traded REITs trade through ordinary brokerage. We help you read payout coverage and balance sheets, think about sector diversification and rate sensitivity, and weigh price against NAV and FFO. Baker 1031 does not provide tax or legal advice — your CPA and attorney handle your specific situation. Our guidance is educational and balanced; we never promise yields or returns, and past performance does not guarantee future results. Our role is to help you apply these better-decision lessons and invest in REITs only when they fit your goals.
Glossary
- Yield Trap
- A high yield that signals trouble rather than a bargain.
- AFFO Coverage
- Comparing the dividend to AFFO to test payout sustainability.
- Payout Ratio
- The share of FFO or AFFO paid out as distributions.
- AFFO
- FFO minus recurring capex and straight-line rent adjustments.
- FFO
- Net income plus real estate depreciation, minus property gains.
- Debt-to-EBITDA
- A leverage ratio comparing total debt to cash earnings.
- Debt Maturity Schedule
- The timing of when a REIT's debts come due.
- Floating-Rate Debt
- Debt whose interest cost resets higher when rates rise.
- Interest Coverage
- How well earnings cover a REIT's interest expense.
- Sector Concentration
- Stacking exposure in a single REIT property sector.
- REIT ETF
- A fund holding many REITs for instant diversification.
- Rate Sensitivity
- How a REIT's value responds to interest-rate changes.
- Net Asset Value (NAV)
- Per-share value of a REIT's property net of liabilities.
- Premium to NAV
- A share price above the estimated net asset value.
- Price-to-FFO (P/FFO)
- The REIT valuation multiple analogous to a P/E ratio.
- Mortgage REIT (mREIT)
- A rate-sensitive REIT that finances real estate for a spread.
Sources & References
- U.S. Securities and Exchange Commission. Investor.gov — Real Estate Investment Trusts (REITs)
- Nareit. What's a REIT (Real Estate Investment Trust)?
- FINRA. Real Estate Investments
- IRS. About Form 1099-DIV, Dividends and Distributions
Disclosures
This article is published by Baker 1031 Investments, LLC for general educational purposes for accredited investors and is not an offer to sell or a solicitation of an offer to buy any security, nor is it tax, legal, accounting, or investment advice or a recommendation. Any securities offering is made solely through a sponsor’s private placement memorandum (PPM) following a suitability determination. Securities offered through Aurora Securities, Inc. (ASI), member FINRA / SIPC; Baker 1031 Investments is independent of ASI.
Oil & gas mineral and royalty interests and DST programs are speculative, illiquid securities sold only to verified accredited investors and involve substantial risk, including possible loss of principal, commodity-price and production-decline risk, lack of control, and the risk that an intended 1031 exchange fails to qualify for tax deferral. Whether a particular interest qualifies as like-kind real property is a fact-specific legal determination that varies by state and by the terms of the instrument. Tax results depend on your individual circumstances. Consult your own CPA and attorney before acting. Past performance does not guarantee future results.
