DAMAC Properties, the largest private developer and luxury provider in the UAE, has played an integral part of the city’s success. The Dubai-based company was the first to introduce iconic properties on all freehold master planned developments in Dubai, and a number of developments have already been successfully handed over to satisfied customers.

Peter Riddoch, Chief Executive of DAMAC Properties comments: “Over the past decade, Dubai has positioned itself as a regional business hub, an attractive tourist destination and a safe and desirable place to live. What the UAE has achieved in that time is remarkable and Dubai’s Strategic Plan has laid out achievable goals to ensure that the success continues over the next seven years.”

Riddoch remains upbeat about the questions of supply and demand: “The growing expatriate population flocking to work in Dubai for high pay and tax-free status is fuelling the demand for property. The Government target is due to increase the population from the current 1.25 million to 10 million by 2010, and with more and more visitors coming to Dubai, the demand will remain for many years to come.”

However, as the property market in Dubai continues to mature, purchasers and investors must consider where to spend their money wisely. Areas that will attract leisure and tourism, such as Dubailand and Dubai Marina, is a good choice; as is Business Bay – the Manhattan of the Middle East and epicentre of trade and commerce. Located adjacent to the Dubai International Finance Centre, the area is set to develop prominence on the world stage as held by New York, London and Hong Kong.

DAMAC Heights is an iconic 90-storey tower in Dubai Marina comprising a mix of exclusive penthouses, duplexes, and one-, two- and three-bedroom apartments. Designed by world-class architects Aedas, the tower offers the perfect choice of amenities such as health clubs for men and women including steam and sauna facilities, a gym, swimming pools, nursery and day-care centres, barbecue area, golf simulator and games room. Owners of the penthouses and duplex apartments will also have access to a luxury yacht! Prices at DAMAC Heights start from £491,000 for a 921 sqft one-bedroom apartment.

‘Lincoln Park’ is a mixed tenure scheme in Dubailand inspired by the brilliant white architecture in the American town of Chicago. The buildings have a well articulated and ornamented front entrance, flat roofs with parapet walls and beautifully designed communal roof terraces. Dubailand is an innovative, awe-inspiring entertainment and leisure development that represents an integral part of Dubai’s bold vision to become the worlds top tourism destination. Located on the Emirates Road in the business and commercial centre of Dubai, it is also close to the Arabian Ranches and Dubai Sports City. Lincoln Park is anticipated for completion in the first quarter of 2010. Prices for a 937 sqft one-bedroom apartment start from £192,400

DAMAC Properties is currently promoting ‘Fairway Heights’, a modern architectural marvel of two 24-storey residential towers strategically located on the Emirates Road adjacent to Jumeirah Golf Estates – a series of four golf courses inspired by the natural elements – Earth, Wind, Fire and Water. The surrounding area is also home to Dubai’s most exclusive hotels and resorts, with a wide range of dining and leisure opportunities, and is just a few minutes’ drive from Dubai marina and the major business districts of Dubai Internet City and Jebel Ali Airport. ‘Fairway Heights’ will provide a variety of world-class fitness facilities including a swimming pool, state-of-the-art gymnasium and health spa for men and women, as well as a number of cafés, restaurants and designer retail outlets. Prices of a one bedroom apartment at ‘Fairway Heights’ start from £197,200.

For further information about DAMAC Properties and their developments across the Middle East and north Africa, please visit www.damacproperties.com or contact
Rammah Taan +44 (0) 207 290 3289 or email rammah.taan@damacgroup.com

2006 saw direct investment into European real estate reach record levels with total transaction volumes of €242 billion – up 39% on 2005. Although the UK, Germany, and France continued to dominate market activity in 2006, accounting for 64% of total volumes, there was significant growth in Central and Eastern Europe (“CEE”) where volumes more than doubled from €5.8 billion to €13.3 billion. Poland alone was the biggest CEE market with transactions exceeding €5.0 billion.

As real estate continues to become an increasingly global asset class with new capital flowing frequently between the US, Europe and Asia, and as new options of entering into the European market are being implemented, such as the introduction of REIT structures, further tremendous growth is expected over the next five years.

The incredible growth of the CEE markets is hardly surprising. Even prior to EU accession, the CEE was viewed as a lucrative market for high-risk investors seeking good returns with yields of 10-12% for properties located in major urban areas being common.

However, following EU accession and the corresponding reduction on restrictions as to foreign ownership of real estate and the perceived reduction of risk in view of harmonized legislation and increased transparency, the attraction of the CEE markets, particularly to conservative investors, grew exponentially, although yields did correspondingly reduce.

Now viewed as safer markets and yet largely untapped, developers began to look aggressively for opportunities. Poland, for example, with a population of nearly 40 million, made it the largest single market in Central Europe and therefore a huge potential for residential development. All of the CEE countries, in view of their physical location in Europe, became extremely attractive to the logistics sector as development and expansion of transport infrastructure became a priority. Each of the markets also provided lucrative opportunities in respect to the construction of Class A office space and upscale retail centers to service Western European retailers seeking to expand their customer bases. Additionally, with the significant migration of manufacturing and R&D ventures into central Europe, the assembly of large tracts of land for industrial purposes became essential and yet another prime investment opportunity.

Although the investment opportunities in the CEE are very attractive, potential investors are strongly advised to rely upon local advisors in regards to specific legal, tax, and planning issues which, if not properly resolved prior to acquiring a property, could lead to serious delays and losses.

In regards to legal matters pertaining to a property’s title, conveyance practices and real estate due diligences are based on the civil law and generally involves the use of both attorneys and notaries in commercial transactions. As between the various jurisdictions in the CEE, the land registration systems and commonly accepted standards of title investigation vary quite dramatically, raising the potential for a number of issues to arise which could affect an investor’s end ownership in the title.

In Poland for example, there is a very solid principle called “the reliability of the perpetual books” which entitles a buyer, if they’re in good faith, to rely upon the most recent entry in the land register to transfer title to them. However, should there be odd annotations against the land register for the property, or references in earlier transfers to outstanding interests, or evidence that the property may be subject to restitution proceedings, that good faith will no longer be applicable and the buyer may be facing litigation and/or administrative proceedings challenging their registered title. Moreover, the likelihood of there being an “adverse” entry against the property is very likely. For example, if the property being bought is within the boundaries of the City of Warsaw, the property would have been nationalized under the Warsaw Decree. Accordingly, it is extremely likely that there were administrative proceedings by the expropriated owners seeking an interest in the nationalized property which, quite frequently, have never been finalized, leading in many cases to ongoing litigation.

In Romania as well, although the returns are very lucrative, restitution is a major issue. Nearly 80% of properties are affected by claims of previous owners whose lands were seized by the Communist government. And considering that Romania is only second to Russia as regards to the number of complaints to the European Court of Human Rights related to the handling of those restitution claims, one can easily imagine the potential costs an investor may sustain in having to defend his title against a restituent.

Even in the Czech Republic where it is possible to investigate titles quickly through an automated system which allows you to query back to the 1930s and earlier, title problems are common. Under the Civil and Commercial Codes, the manner in which a sale transaction is to be documented is specifically set out. Frequently, the actual conveyance documentation is defective as it may be missing necessary attachments and approvals, contains erroneous legal descriptions, and/or is based on Powers of Attorney which are not in accordance with the requirements of the company’s founding Articles – all of which can lead to the transaction being challenged by an interested party.

In response to these issues, many investors are turning to title insurance policies as a cost effective way of protecting themselves against issues identified during the due diligence phase and unknown title matters which could assert themselves after their acquisition of title.

Having recognized this need on the part of investors, Stewart Title Limited entered the CEE market in 2000 as a provider of title insurance and has since underwritten nearly €5 billion of risk in all of the CEE countries.

To discuss title insurance in foreign markets, Stewart’s team based in the company’s corporate head office in London will be happy to help you.

Katja Huitikka is Director of Underwriting for Stewart Title’s European Operations. Ms. Huitikka can be reached at +44 (0)20 7010 7820 or via email katja.huitikka@stewart.com.

Julie Page is Business Development Executive & Solicitor for Stewart Title’s UK Operations. Ms. Page can be reached at +44 (0)1392 680680.

Property held for investment or business use and sold at a profit is subject to capital gains transaction on the gain over cost basis. Depreciable investment property, held for many years, typically has a lower cost basis, further exacerbating the tax problem.

These taxes can be deferred by doing a tax-free exchange, commonly called a 1031 transaction. In an exchange transaction the seller sells one property and within a specified period buys a second. If done within the rules, any gain on the sale of the first is deferred until the second, or purchased, property is sold.

For this to work, specific rules must be followed. First, the property to be exchanged must be “qualified,” defined as real estate property held for investment or income-producing purposes or equipment used in a business. Property not qualifying includes personal use real estate, foreign real estate, property held for sale, inventory or stock-in-trade securities and notes.

The IRS has allowed broad definitions of “like kind” to apply. Grade or quality of property does not matter. Farmland can be exchanged for commercial or residential rental property. Unimproved land can be exchanged for a leasehold property of 30 years or more. Solely owned property can be exchanged for a tenant in common interest in a property.

Next, if the purchased property is of lesser value than the sold property, or the sold property has a mortgage, the seller will get the “boot,” in this case boot is a term for a taxable gain on the boot portion.

Certain time lines must be followed for a qualified exchange to occur. The seller must identify a replacement property within 45 days of completing the sale of the original property. The seller can identify up to three properties as prospective purchases. The outright purchase must be completed within 180 days of the sale of the first property.

The transaction in a delayed exchange, as outlined above, requires the use of a financial intermediary. The intermediary steps into the seller’s shoes and acts as the seller in the closing of the selling transaction. The intermediary will hold the proceeds of the sale while the property to be purchased is identified and subsequently purchased.

The intermediary may not be related to the seller, may not be an employee or may not have acted recently as a professional advisor to the seller. Generally intermediaries are title companies or law firms specializing in that business. They are paid a fee and/or interest on the money they hold in their trust account.

Exchanges may be simultaneous in that the closing of the exchange and the replacement properties take place on the same day. A delayed exchange is the most common, with the target, or replacement, property being acquired after the original property is sold. A reverse exchange is allowed when the target property is purchased in advance of the sale of the original property.

In a more complicated transaction, the taxpayer can arrange to acquire a property and improve the property as part of the transaction. In this case, the intermediary must retain title to the property until the improvements are completed.

Finally, multiple-asset exchanges are allowed between individuals, investors, small businesses and large corporations. For example personal property such as trucks, helicopters, planes, and furniture can be exchanged along with real estate.

For many, part of the “American Dream” is owning real property. Prior to completing the purchase a buyer is typically asked by his real estate agent, and later by the title company handling the sale, how title is to be held.

Titling is held as important for a variety of reasons. Understanding the difference between sole proprietorship, joint tenancy, tenants-in-common, and community property impacts creditor protection, estate planning, and marital dissolution issues.

Sole ownership means just that … title is vested in one person or entity. The buyer will sign as a single individual (having never been married) or an unmarried individual (widowed or divorced,) or a married individual acquiring an interest as sole and separate property with the other spouse relinquishing all right, title or interest.

Tenancy-in-common allows any number of persons to hold title together with each having a divided interest, equal or unequal. This form of ownership is common among business owners, parents and children, and unmarried domestic partners.

Since one co-tenant cannot act on behalf of another, and they are not liable for the acts or omissions of other co-tenants, creditors can assert a claim against only a portion of the property evidenced by a co-tenant’s interest.

For estate planning purposes, a co-tenant has all the rights of a sole owner for his/her portion of the property, including the power of appointment to give his interest away while alive or leave an interest by will at death. For gift or estate tax purposes, the value of a co-tenant interest may be discounted if the new co-tenant does not enjoy the total ownership of the property.

Joint-tenancy differs from tenants-in-common in that the property ownership interests, which can be owned by any number of persons, cannot be divided. There is only one title to the property and all owners have equal rights of possession. Upon the death of an owner, that person’s ownership interest ends and cannot be willed or given away. The survivor(s) retain all ownership interests.

A common mistake made by parents is to put children on property as joint tenants thinking that by doing so they can pass the property without going through probate. The latter is true, however in doing so they create a taxable event in that the transfer of a joint tenant interest is considered a gift requiring the filing of a gift tax return. Also, this exposes the property to creditor claims of any joint tenant.

Since a joint-tenancy arrangement passes the property to the surviving joint tenant, the decedent tenant has no power of appointment over that property at death. Parents holding property in joint-tenancy have effectively disinherited their children since the first-to-die parent cannot appoint his/her interest in the property to an heir by means of a will.

Finally, when a joint tenant dies, the surviving tenant is deemed to have received a gift from the deceased of one half of the value of the property. This inherited half receives a stepped-up cost basis equal to the value of the property at date of death. Unlike community property, the half interest retained by the surviving joint tenant retains the original cost basis.

Community property states, such as California and Washington, treat property held and titled by married couples as community property similar to joint tenancy with two very important exceptions. At the death of the first spouse, the decedent has full power of appointment, or the ability to give his/her interest to whomever he/she pleases. Most commonly, the property will be left to the surviving spouse to use for the rest of his/her life, then be passed to the children. Finally, at death, the property receives a full stepped-up cost basis, enabling the surviving spouse to sell the property without a capital gains tax.

Bruce Fenton is a financial consultant, a writer, and the Managing Director of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.

Ever dream of owning a home in Aspen?—haven for movie stars, sports heroes, and others of unimaginable wealth? Even there, where the common second home goes for middle to high seven figures, it may be possible for the common millionaire to “buy in,” thanks to a more affordable arrangement being offered by the Ritz Carlton organization.

According to demographic economist Harry Dent, author of The Roaring 2000s™, as the baby boomers approach the final trimester of their lives, they will seek out wide varieties of second-home living. Rapidly escalating current real estate prices in second-home communities from California to Florida bear out the accuracy of Dent’s predictions.

The boom in demand for recreational homes is also evident in the proliferation of shared ownership arrangements. These can take a variety of forms, ranging from buying “time credits” that can be used at a number of facilities to outright ownership of a specific property for a stated number of weeks or months a year.

Such interval ownership arrangements can be used to provide variety and meet differing interests for vacations.

Owning interests in recreation property is an ideal way to participate in the second home boom, providing one keeps in mind two important points.

1. Ownership of second home properties should never be considered an investment.
   In the first place, the prices of these properties will be the last to go up in a boom and the first to come down after it. In a slow economy, you may not be able to give away a second home!This is even more true of shared ownership interests.

   Moreover, the ownership cost of a second home does not compare favorably with renting properties at resorts you wish to visit. In most cases, it will take you from five to ten years of regular use to break even. When you add the association dues, maintenance charges, and exchange fees to the purchase costs, the total will generally exceed what you can expect to pay for comparable facilities on an as-needed basis. On the bright side, those maintenance fees do free you from the worry of property upkeep.

2. This type of ownership works best for the family with a variety of travel or recreation interests.

Shared ownership arrangements make it possible to take many different vacations. Ordinarily, owners can exchange time in one resort community for time in another, so there is opportunity to travel to a variety of places at a variety of times. For the “Type As” among us, this causes us to think and plan for much needed time away from work.

Major resort chains such as Ritz Carlton, Four Seasons, Marriott, Hilton, and Disney market many of these ownership arrangements. For as little as a couple of hundred thousand dollars, you can own a month at Aspen in the Ritz Carlton Club (if you don’t want the more popular winter and summer months!)

Still, for an opportunity to hang out at the J-Bar in the Hotel Jerome, the price isn’t bad.

Bruce Fenton is a financial consultant, a writer, and the Managing Director of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.

The average American gets married around age 25-26. The first child comes along about two years later. This household buys its first home around age 33 and buys their largest, trade up home around age 43. During these years, our average family will spend more and do more for our economy than at any other time in their economic lives. (Data from Clayton E. Tucker-Ladd’s, Some Facts About Marriage and U.S. Dept of Labor Consumer Expenditure Surveys.)

The single largest cost to our average household is the mortgage interest they pay during their lifetimes. Low interest rates, offer an average family the opportunity to significantly reduce this cost and channel the monthly outlet saved into long-term savings or the opportunity to move up to a bigger home.

To put this in perspective, consider that an 8%, 30-year mortgage will cost a consumer approximately $164,000 in interest per $100,000 borrowed. Reduce that interest rate to 6-½% and the interest cost falls to $127,000—a savings of $37,000 over the life of the loan. Take this a step further and invest the monthly payment difference of $101 into an investment earning 8% for the thirty year life of the mortgage, and the result is $150,000 of accumulate wealth at the end of the thirty year period. Or, if they prefer, they can accelerate the payment of their mortgage by putting those savings back into principal.

Our first Baby Boomer President, Bill Clinton, and Congress gave us additional tax incentives for home ownership. Prior to 1997, gain from one home sale could be rolled over, tax-free, into a home of equal or greater value. This worked fine for the older, Bob Hope Generation, who tended to stay put in the family home.

But the next generation, the Baby Boomers—more affluent, more mobile, and more inclined to lifestyle changes—is reaching the time in their lives when they will want to trade the smaller starter homes they bought a few years ago for that trade-up home. Ultimately, they will want to sell their larger home and move to an island in the sun, taking with them as much wealth as possible from the home ownership.

Clinton gave them the tax break they needed, when he signed tax law changes that allowed a married couple the opportunity to keep up to $500,000, tax-free, from the sale of their personal residence, provided they have lived in that residence two of the last five years.

By trading up, they can continue to grow their wealth in their real estate. By continually raising the cost basis in their home, when they finally sell and become equity refugees in the sun, they will take with them a large amount of wealth.

The sharply lower interest rates allow our average family the opportunity to reduce their monthly outlays for housing, increase their investments for future retirement, and/or move up to a larger home to accommodate their growing needs.

Run, don’t walk, to your mortgage broker or realtor… you may not see rates like these again for a long time!

On the surface, rising real estate prices appear to be a simple economic application of the laws of supply and demand. As many like to say, “Since they aren’t making any more, prices must go up”.

True, to a degree, as in the simplest of terms housing prices are driven up by land availability, employment rates, consumer pre-tax income growth, new household starts, interest rates and immigration rates. Alarmists point to these factors and see a bubble forming.

By changing how we think about the laws of supply and demand, we get a different perspective on the “housing bubble”. Consider that in our capitalistic society the greater the demand for something, the more likely that capitalists will figure out a way to provide it at a profit. In an unfettered world of growing demand and the infinite ability to meet that demand, more and more companies would create more and more of a product or service leading to a glut and falling prices. Not the case with housing.

A brand new study done for the National Bureau of Economic Research (NBER) by Edward Glaeser points out that demand alone does not drive housing prices. Soaring home prices are primarily coastal phenomena that have left the growing states of the American interior untouched.

By taking a look at the supply side it is easy to see why prices have gone up in certain parts of the country. Land-use regulation and a desire to live in bigger homes are largely responsible. Where local laws limit new construction, higher prices result as an area adds population by the creation of new jobs, new immigration and new household formations.

Glaeser points out that California has grown by 2 million people since 1999. This translates to a demand for more than 800,000 new single and multifamily units to keep up with the growth. There have only been 200,000 new apartment units and houses built since then.

Add to the above the fact that an investment in a personal residence is an investment in the one asset that carries with it all the tax benefits our system can provide…deductibility of interest and property taxes and tax-free gain up to $500,000. This makes the after tax return higher than most other assets.

That being the case, economic theory tells us that asset prices go up relative in price to the after-tax return of other assets. With the unique tax benefits a personal residence affords it should be valued relative to other assets by its tax preferences as well as supply constraints noted above.

The Glaeser report notes that two-thirds of Americans now own their own home or condo…a percentage far greater than in any other civilization where fee-simple ownership of land and property exists.

Home prices will fall where there are substantial decreases in employment rates, more restrictive land zoning, building rates in excess of immigration, demographic shifts when a larger percentage of the population moves from larger, family homes to smaller retirement homes, and a drop in new household starts.

One other factor could cause a sharp decline…when too many homes are bought simply for speculation, as was the case in Australia where more than 40% of homes bought in 2003 were for speculation and prices have plummeted. Subtracting second homes in the U.S., we are around 5%, not close enough for a bubble!

The Census Bureau reported that housing starts rose in December to their highest level since 1984, surprising analysts who had expected a decline. Permits issued for new construction also rose, suggesting that 2004 will be nearly as strong as 2003, a year that by some measures was the best ever for the industry.

There are a number of reasons why housing is important. Approximately 66% of our nation’s economy is driven by consumer spending. Housing is a key component of the consumer budget. For the vast majority of Americans, a house will be the biggest consumer purchase of their life. An expenditure of $200,000 or more for a newly constructed home will inject many times that amount of spending, or aggregate demand, into our economy as it is multiplied and re-spent many times. The purchase of a new home also leads to the purchase of such consumer durables as appliances and furniture.

One of the stimulants to the current housing boom is our historically low interest rates. Since home and furnishing purchases often require vast amounts of debt, low interest rates stimulate this boom. Conversely, rising interest rates will choke off the boom and have a negative impact on the overall economy and the stock market.

According to demographic spending studies done by Harry S. Dent for his book, The Great Boom Ahead, the average age of the head of household when the first or starter home is purchased is 33. This implies that the last of the baby boomers, born in the late 1960s, are now buying their first homes.

Immigration also plays an increasingly important role in the housing market and the economy in general. Dent notes that immigrants to this country are generally younger and are here to earn a piece of the American pie—the most important slice being homeownership.

According to a FannieMae report, the number of immigrant households is projected to grow dramatically in the 21st Century, representing more than 1/4 of overall household growth—the factor that accounts for most new residential construction in the United States. The longer these immigrants live in the U.S., the more likely they are to purchase homes.

The report also notes that about 12 million new households will be formed in the next decade. Minorities and immigrants will make up about 2/3 of this growth. Immigrants see homeownership as an integral part of becoming an American and frequently rank buying a home as their number one financial priority.

After looking at this data and the economic impact the housing market has on the overall economy, it is understandable why a rise in interest rates would trouble the stock market. Anything that might slow homebuilding and household formations is not good for the economy.

These investments are governed by a board of directors and may be publicly traded on a major stock exchange in the same way shares of a corporation’s stock are traded. Just like other publicly and privately offered companies, REITs must provide investors with a prospectus, annual reports and other periodic updates. These investments are not for everyone. With privately held REITs, there can be some restrictions such as not being as liquid as publicly traded investments.

That being said, why would you or anyone want to invest in a privately held REIT?

• REITs allow smaller investors to own large income-producing real estate.
• REITs pay non-guaranteed quarterly dividends (currently 7%) which are often used as an additional source of income.
• REITs collect their income from corporations first. Corporations are obligated to pay operating expenses such as rent, salaries, taxes and utilities FIRST before any interest or dividends are paid to bondholders or stockholders.
• REITs can further diversify a portfolio, which can offer the potential for reducing the overall portfolio risk and higher returns.

We think this may be an appropriate investment for some people, but not everyone. This investment requires a time commitment, and there could be a waiting period for withdrawing your money.

We have found what we believe to be one of the most conservative REIT firms on the market today. If you are concerned about today’s low interest rates and want to look at some alternatives, please feel free to call us at 800-559-2900 and ask for the REIT information packet, which will include a current prospectus.

Better yet, make an appointment so we can explain this investment to you in person. It’s very easy to understand if we can sketch it out, but it’s a bit difficult to do over the phone. We look forward to speaking with you soon.

Bruce Fenton is a financial consultant, a writer, and the Managing Director of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.

Note: There are special risks associated with real estate investing, and it may not be suitable for all investors. REIT investments should be made as long term investments. Volatility is potentially increased by investing in a portfolio solely of real estate securities. A prospectus detailing all risks, fees, and expenses is available for review from your investment consultant. Past performance is no guarantee of future results. Dividends are not guaranteed and, if paid, will fluctuate in rate.

A REIT is a company whose sole purpose is to own and/or operate income-producing real estate, such as apartments, shopping centers, offices and warehouses. Some REITs engage in financing real estate. What makes REITs unique is the requirement that they pay at least 90% of their annual income to their shareholders. This payout can also include non-taxed income representing cash flow from depreciation.

REITs were not a large factor in real estate investing for the first 30 years of their existence. Initially, tax laws made real estate an attractive tax shelter for investment capital using partnership arrangements. And REITS could only own property; they could not manage or operate property. Finding managers whose interests were aligned with the REIT was difficult.
The Tax Reform Act of 1986 materially altered the real estate investment picture. Out went the more abusive tax-shelter elements. REITs were granted the right to own and manage property. But it took the commercial property depression of the early 1990s brought about by overbuilding to encourage real estate companies to seek capital from the public investment markets and individual investors.

As an investment, REITs offer a number of attractions. Since they must pass essentially all of their operating income through to shareholders, there is reduced opportunity for management to turn the REIT into a private piggy bank.

And because public REIT shares trade on the stock exchange, investors have liquidity in their real estate investments. They may buy and sell a diversified portfolio of properties, as well as the management, on an instantaneous basis.

Finally, REITs offer the security of owning real estate with a long life and the potential to produce income. When compared to owning public company bonds or dividend-paying stocks, payment of rents to an investor take priority over payment of bond interest and stock dividends.

REITs are available in three forms:

1. Investors may buy the individual REIT public stock. The stock prices will fluctuate with the market, but they have the advantage of minute-by-minute valuation and immediate liquidity.
2. REIT mutual funds own portfolios of individual, public, REITs and other companies engaged in real estate activities. This provides the small investor with an opportunity to own a widely diversified portfolio of real estate related investments.
3. A number of sponsors sell private REITs. Like the public REIT, they pass through to investors at least 90% of their income. Unlike the public REITs, however, the price is stable, and since it is not quoted daily, it is an ideal way for nervous investors to participate. Liquidity is limited to cashing out at pre-determined times in the year when management values the holdings.

Investors seeking to outpace inflation should be encouraged by the fact that equity investments in real estate have historically outpaced inflation, according to U.S. Dept of Commerce Labor Statistics, CPI (1982–2001).

In a study titled “Homeownership and Investment in Real Estate Stocks” prepared for the National Association of Real Estate Investment Trusts, economist Jack Goodman concluded that individual investors build greater long-term financial wealth when they combine homeownership and REIT stocks as part of a diversified investment portfolio.