Definition: REITs, or Real Estate Investment Trust, is how the average person can invest in commercial real estate (apartments, office buildings, shopping centers, hotels and warehouses). You can buy and sell shares of REITs just like stocks or bonds. This is easier and cheaper than trying to buy or sell the actual commercial real estate. REITs distribute taxable earnings to the investors, just like many companies distribute dividends to their stockholders.
Commercial real estate trends are usually a lagging indicator. That's because commercial real estate developments are built after residential. Shopping centers, offices and schools are usually built after an area has the homes and shoppers to support it. It can also take several years to construct commercial real estate. During a boom, commercial real estate could be experiencing an asset bubble after residential real estate starts to decline. During a recession, commercial real estate hits its low after residential real estate. Therefore, when investing in REITs, be sure that you are aware of the business cycle.
