BALTIMORE (Stockpickr) -- What started out as a stellar year for real estate investment trusts, or REITs, has become a rough one in just a few months. Since the word "taper" entered investors' vocabulary, they couldn't unload these unique names fast enough -- but now, it looks like they've overdone it.And that's creating a big opportunity for anyone willing to step in and buy. It's not shocking that Bernanke and company torpedoed REIT prices by talking about tapering their unprecedented asset buying. You see, despite their usefulness as a way to get exposure to real estate in your portfolio, REITs are really purpose-built income generation machines. U.S. tax rules give REITs the ability to pass on the vast majority of their income to investors in the form of dividends, and as a result, these vehicles can sport higher yields than most conventional corporations. So, the potential that the Fed's break-pumping will raise interest rates makes REITs look less attractive. Yes, if the Fed stops buying treasuries, it's very likely we'll see yields rise -- but the notion that REITs suddenly become less attractive because no one wants to buy treasuries anymore is crazy. And it ignores the fact that the Fed is likely to keep the federal funds target rate near zero. Translation: REITs are due for a bounce. With so many names sporting impressive yields after getting sold off this summer, investors who take the plunge into real estate investment trusts could be sitting on very favorable dividend payouts for as long as they hold. That's why we're taking a closer look at five REITs worth owning to call the Fed's taper bluff this fall.
AVBAvalonBay Communities Generally speaking, residential REITs aren't as attractive as landlords that focus on commercial tenants. That's because residential leases are generally short-term, government housing protections make it difficult to evict renters who don't pay, and sustained low mortgage rates and home prices have made buying a home cheaper than ever before. But AvalonBay Communities ( AVB) is the exception to the rule. AvalonBay is one of the biggest residential REITs in the world, with 173 communities in its portfolio that span approximately 51,000 apartment units -- and more are on the way. Because AvalonBay focuses its portfolio in affluent metro areas from New York to San Francisco, the firm has enjoyed strong demand and occupancy despite the housing hiccups. And it maintains levels of profitability you'd normally expect to see in a commercial REIT. AVB has been working hard to expand its business in recent years. It's continuing to build out its housing portfolio with new projects, and recent huge acquisitions have helped provide instant scale increases lately. New initiatives to court younger, less established tenants could be very successful as long as the economic cycle remains intact along the way. Currently, AvalonBay pays out a 3.3% dividend yield. To see these five REITs in action, check out the REITs to Buy in 2013 portfolio on Stockpickr. -- Written by Jonas Elmerraji in Baltimore.
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