On money

Personal Finance editor HELEN HUNTLEY E-mail: Click here Archive

© St. Petersburg Times,
published December 2, 2001

Investors, do some research before rushing into a REIT

Q. What can you tell me about real estate investment trusts? My adviser is pushing for us to sell the stocks we own and invest in REITs. We have so many different stocks with only 10 to 50 shares in each, but we have had them for years. We would have about $10,000 after paying the taxes. My husband is 79 and I am 75.

A. Real estate investment trusts are companies that own commercial real estate or mortgages. Some specialize in a particular sector, such as shopping center properties or hospital mortgages.

By setting themselves up as REITs, companies avoid paying taxes on their income at the corporate level. To qualify for this benefit, they have to pay out at least 90 percent of their taxable income as dividends to shareholders. That's why their dividend yields are so high in comparison to other stocks, which has made them a very attractive investment as interest rates have fallen.

Before buying a REIT, you should know something about the company, its management and operating history. You also should know something about the risks involved. If interest rates go back up, REIT stock prices are likely to decline. REITs also face risks from a slumping economy, which makes it tougher for tenants to make their rent payments or expand their operations. However, REITs may not be any riskier than the stocks you already own.

You can read more about REITs at the National Association of Real Estate Investment Trusts Web site (www.nareit.org).

Unfortunately, I can't tell you whether REITs are right for you. Owning a bunch of tiny investments is a paperwork pain. But putting all your eggs in one basket isn't a smart idea either. REITs can be a good way to increase the income of a diversified portfolio, but small investors are probably better off buying them through mutual funds rather than making a bet on one or two stocks.

Q. Now that I am older and my finances are dwindling, I need to turn all my assets into cash. During World War II, I bought many $100 savings bonds. How many bonds can I cash in each year? Is there a penalty other than the income taxes on the interest? What percentage will the IRS charge on the interest on the bonds?

I also have a number of silver dollars, not in mint condition, and some coin sets still in their sealed packets, as well as many other coins and medals. Can you recommend a reputable person or organization that I can consult to find out the value of my collections other than a coin dealer?

A. You've already paid your penalty without knowing it. Your World War II-era bonds stopped earning interest 40 years after they were issued, which means you have been making an interest-free loan to the government.

It might make you feel better to know that you are not the only one holding bonds that should have been redeemed long ago. Many people still own bonds that are no longer earning interest: E bonds issued from May 1941 through October 1961 and from December 1965 through October 1971 and savings notes issued from May 1967 to October 1970.

Most likely your tax will be 15 percent of the interest earned. There is no limit to the number of bonds you can redeem in a year, but if you have a very large amount of bonds, you might consider cashing half of them this month and the other half in January. That would divide the tax liability between the two years. Or you might just wait until January and push all the taxes into the next year. A tax adviser who is familiar with your situation could tell you which would be better for you.

Unfortunately, I cannot refer you to someone to appraise your coins. Try attending a coin club meeting or a coin show in your area or researching coins online. You can search the "completed auctions" section on eBay (www.ebay.com) to find recent selling prices for coins similar to yours. You can also get a referral to a dealer or a coin club through the American Numismatic Association (www.money.org).

Also, Florida United Numismatists (www.funtopics.org) is sponsoring what it claims will be the nation's largest coin show Jan. 10-13 at the Orange County Convention Center in Orlando. Admission is free.

-- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.

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