As promised, today we are announcing the 2025 winner of the Robert Wayne Pearce Investment Fraud Awareness Scholarship. Over the course of the year, we received applications from over 625 students from schools around the country who all wrote quality essays about The Pros and Cons of Investing in Real Estate Investment Trusts.
The winner of the $2,500 scholarship is Carliana Del Guercio, a student at Florida Atlantic University, College of Business, who wrote the following essay:
The Pros & Cons of Investing in Real Estate Investment Trusts
Real Estate Investment Trusts (“REITs”) are companies that own or operate real estate properties intended to generate income for investors. There are two main categories of REITs: Mortgage REITs investing in mortgage and mortgage-backed securities that in turn invest in commercial and residential projects; and Equity REITs that typically own and manage a diversified portfolio or a specific type of property, including apartments, healthcare facilities, hotels, offices, self-storage buildings, and retail shopping centers.
The structure of REITs is as important, if not more than what REITs own and manage for investors who want information about the investment and the ability to sell when they need liquidity. There are three structures: Public REITs registered with the SEC whose shares on national stock exchanges like stocks that report public information and provide liquidity; Public Non-Listed REITs which are also registered with the SEC and reporting public information but not traded on any exchange and therefore with limited liquidity; and Private REITs providing the least information and liquidity to investors.
The assets owned by the REITs and the structure of the REITs the investor chooses to invest carry different Pros (benefits) and Cons (risks). But generally, the Pros of investing in REITs are dividend income, portfolio diversification, liquidity (Public REITs only), accessibility to commercial real estate, and professional management. The Cons of investing in all REITs include REITs interest rate sensitivity, tax disadvantages, limited capital appreciation, and lack of control.
The primary reason for investing in REITs is they generally provide high, steady dividend income because they are legally required to distribute at least 90% of their taxable income to shareholders annually in the form of dividends. They offer portfolio diversification because real estate has a historically low correlation with other asset classes like traditional stocks and bonds. Unlike direct real estate investments, which can be difficult and time-consuming to sell, publicly traded REITs are bought and sold on major stock exchanges, like stocks. REITs also allow everyday investors to access large-scale, income-producing commercial properties that would otherwise require substantial capital to invest in directly. Finally, REITs are managed by experienced management teams who handle all the complexities of property acquisition, leasing, rent collection, and maintenance.
The cons on the other hand are, all REITs are particularly vulnerable to interest rate fluctuations; when interest rates rise, the cost of borrowing for REITs increases, which can reduce their profitability and lead to lower dividend payouts. Another drawback for many investors is the tax treatment of REIT dividends; most of these dividends do not qualify for the lower tax rates applied to qualified stock dividends. The requirement to pay out a large majority of their income as dividends means REITs retain less capital for reinvestment and expansion (e.g., buying new properties or enhancing existing ones); this structure can result in slower capital appreciation or no growth whatsoever. When you invest in REITs, you have little to no control over the specific properties purchased, their management, or the overall investment decisions; you are relying entirely on the management team’s expertise. Finally, some REITs, particularly non-traded or private ones, can have high associated fees, including management fees and acquisition fees, which can eat into your returns.
In my opinion, weighing the Pros and Cons, only Public REITs should be considered for a small portion of one’s investment portfolio.
We thank all the other applicants for their efforts and announce that the next scholarship, to be awarded on December 15, 2026, will be given to the student who writes the most thoughtful essay about “The Different Types of Cryptocurrency Scams Causing Investors to Lose Fortunes.”
Please personally write (do not ask ChatGPT to write) about one or more horrible cryptocurrency scams causing investors to lose fortunes.
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