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Know the risks

Every investment strategy comes with risks, and real estate is no different. First, anything that might affect real-estate prices could inevitably affect REITs and other real estate holdings. “Remember, real estate is cyclical,” said Jared Feldman, a partner at the accounting and advisory firm Anchin who describes his job as being a “CFO to high net worth individuals and families.” Cyclical assets rise and fall with the economic cycle. As such, real-estate prices tend to rise when the economy is booming, and fall during economic contractions and recessions.

Another thing to monitor, according to Feldman, is rising interest rates. Traditional buyers of real estate closely watch interest rates mainly because higher rates mean a higher cost to finance a purchase. But even if you’re not buying a physical property, rising interest rates could be negative for your real estate holdings. That’s because when bond yields rise, the yields on REITs start to look relatively less attractive and investors tend to sell them. But there is a silver lining. If interest rates are going up because the economy is improving, REITs’ rental income may be increasing and the value of the properties they hold may go up as well.

Read the complete article by MarketWatch