Are Mortgage REITs a Good Buy Right Now?

Mortgage real estate investment trusts (REITs) are like the risky stepchild in the world of REITs -- often overlooked and outshined by safer dividend-paying equity REITs. Unlike equity REITs, which own and lease physical real estate, mortgage REITs invest and originate real estate debt and securities. This unique investment strategy means investors can still earn dividend returns, but not without some notable risks to consider. Here's a closer look at how mortgage REITs work and whether they are a good buy right now.

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Mortgage REITs (or mREITs) either create commercial or residential mortgages, invest in real estate debt securities like mortgage-backed securities (MBS), or use a combination of the two. mREITs earn income from the interest paid on the mortgages over time either by originating the loan and simply holding it for the long term or through net interest margin, which is the spread between the purchase price of any securities and the interest paid.

Source Fool.com