Are Mortgage REITs Too Risky for Me?
For the average investor, the answer is yes.
Though many investment advisers will say new mortgage REITs are great investment
vehicles for certain investors, the truth is they're simply too risky
for most. Average investors are generally looking to maximize their returns
while minimizing their risk. REITs are not usually appropriate for these
REITs are complicated, and they carry hefty commissions, upfront costs,
and ongoing fees. They're also typically focused on one type of real
estate, which means they're more vulnerable to market changes than
more diverse products.
Currently, for example, mortgage REITs (which use mortgage-backed securities
as collateral to borrow money and buy bonds) are advertising dividends
of 14 to 20 percent. But, those dividend payments are anything but stable.
If the cost of borrowing goes up, or investors get worried the market
will freeze, the yields could plummet. The latter is exactly what happened
just a few days ago, when worries over the potential for a U.S. default
sent the market into a panic. In a matter of hours, some
mortgage REITs dropped almost 19 percent.
Still, despite the risks and FINRA's recent
warnings about chasing
high returns, advisers continue to recommend these products to clients, and investors
continue to purchase them. To protect themselves, investors should fully
understand how a product works - and the risks involved with the product
- before they invest.
If you have purchased an
unsuitable REIT, such as Apple REIT 10 or a mortgage REIT, you may have a claim for
misconduct. To learn more about recovering your losses, click