REITs: when you decide you do not want to be a landlord but want to have an income like a rent

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Plenty of savvy investors use real estate as a way to earn income. You buy a property, rent it out, and, ideally, pocket some extra cash. And low mortgage rates and a steadily improving market have experts insisting that now is a great time to invest in real estate. But what if you can't afford to put a down payment on a home in your area? Or what if you don't feel like playing landlord and renting out a property? You might be interested in REITs—Real Estate Investment Trusts.

A REIT is basically a company that owns and produces income from real estate. You buy shares; you profit if they profit.

So, what kind of cash flow do these provide in terms of dividend income, exclusive of capital gains? What's the theoretical % return, or does it vary a lot?

Also, I'm confused about dividend tax law. I thought some / most dividends were charged at a rate lower than ordinary income, and that that was how a lot of wealthy people reduced their overall tax rate (for better or for worse). How does that work?

It depends. There are many, many types of reits. There are mortgage reits (which buy up paper that pays interest) and equity reits (which own properties/have mortgages themselves). Mortgage reits payout depends on the rate of paper and their ability to resecuritize/recollateralize debt for capital gain (the repackaging of different risk-rated securities and unrated securities into new securities). Equity Reits payout based on their rental income. 

Within equity reits, there are many flavors: industrial (factories), biotech (labs, manufacturing), server farms, hospitals, residential (apartments) and commercial (office space). Each have their own risks and average yields.

That said, its not unreasonable to get 6-12% yield on a specific REIT. 

REITs are a decent alternative source of income. Just remember, if you already own a house a HUGE portion of your investment portfolio is already in Real Estate. Unless you rent or have a lot of other investments, adding REITs to your portfolio can be redundant on your largest investment. They also can have relatively high expense ratios (since someone is actively managing a real estate portfolio).

If you have more questions call me at 813 964 7100 or email me at mminter@mintcofinancial.com

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