1) What is the difference between equity real estate investment trusts and mortg

Question

1) What is the difference between equity real estate investment trusts and mortgage real estate investment trusts? Considering the current state of home values in the United States (for example, in Nevada), which of the two types of trusts would have provided a superior rate of return over the last five (5) years? Provide a detailed rationale to defend your answer. Also, Would real estate investment trust or mortgage real estate investment trusts be a better hedge against high inflation? Why or why not?

Explanation / Answer

Equity real estate trusts use the investors' money to purchase real estate, which is owned by the trust. Mortgage investments trusts use investors' money to make loans so that others can purchase property; the trust then owns the mortgage, but not the property. Given the decline in home values in the U.S., an equity trust would have lost money during the past years. A mortgage trust would still have received income from mortgage payments. An equity trust is a better hedge against inflation, since real estate values go up along with other prices. Mortgage income is fixed, and it does not match inflation.

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