Few California investors were surprised when the U.S. Federal Reserve announced on Dec. 14 that interest rates would be increased by a quarter point. Rates dropped to historic lows following the 2008 financial crisis, but several quarters of robust growth have led most analysts to conclude that the era of almost free money is coming to an end. Real estate investment trusts have been extremely popular in recent years because they are required to pass at least 90 percent of their taxable income to shareholders, but even these yields may not be enough to lure investors away from equities when interest rates are climbing and economic indicators are positive.
However, investors may be wise to look at the big picture before pulling their money out of REITs. The taxes Americans pay on investment income would be reduced significantly under the financial plan proposed by President-elect Donald Trump during his campaign, and top earners would see their tax liability reduced to 16.5 percent on income derived from REITs if Congress decides to move ahead with the Trump plan.
REITs are also made up of commercial real estate like offices, stores and factories, and this means that they are a fundamentally sound investment when the economy is healthy. REITs that feature warehouse properties are seen as being particularly attractive due to anticipated high demand and limited supply. The surging popularity of shopping online has fueled a scramble for available warehouse space, and demand is predicted to be highest in highly populated areas like Orange County.
Investing in commercial property can be extremely risky, and this is especially true in states like California where prices are high. Attorneys with experience in this area could help investors by studying the property portfolios of investment vehicles like REITs based on the latest market data and trends. Attorneys could also assist commercial property owners who wish to convert unused commercial spaces into warehouses with the legal issues involved.
Source: The Washington Post, "Federal Reserve raises interest rates for second time in a decade", Jim Tankersley, Dec. 14, 2016