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Tax savings and warehouse shortage could make REITs more popular

On Behalf of | Dec 16, 2016 | Commercial Real Estate

Investors in Kansas and elsewhere tend to move their money out of high-yield investments like real estate investment trusts when economic conditions improve. Equities markets offer the promise of robust growth when consumer confidence is high and unemployment and inflation rates are low, and equities are even more attractive to investors when interest rates are on the rise. The U.S. Federal Reserve increased rates by a quarter point on Dec. 14, and many analysts feel that the move signals a long-term departure from historically low borrowing costs.

While stock markets will likely continue to post healthy gains in the months ahead, investors may be prudent to pause before pulling their money out of REITs. The tax rates paid on investment income would be significantly lower under the tax structure proposed by President-elect Donald Trump, and top earners will pay a rate of only 16.5 percent on REIT dividends if Congress decides to support the plan.

The surging popularity of online shopping could also make some REITs a wise choice for savvy investors. Companies like Federal Express, UPS and Amazon are snapping up warehouses as they seek to keep up with demand and shorten their delivery times, and this scramble for space is expected to create acute shortages in densely populated areas like Overland and Topeka.

While the demand for warehouse space could lead to robust gains for certain REITs, investing in commercial property is rarely a risk-free enterprise. Attorneys with experience in this area could compare the property portfolios of REITs after taking prevailing market conditions into consideration, and they could also point out to investors that proposed tax cuts are by no means guaranteed to make it through the legislative process unscathed.Source: The Washington Post, Federal Reserve raises interest rates for second time in a decade, Jim Tankersley, Dec. 14, 2016