The real estate market may have had its ups and downs in recent years, but REITs are holding their value and merit a place in client portfolios.

Kevin O’Reilly, a planner with Phoenix-based Foothills Financial Planning, says that he likes to include REITs in every portfolio, but especially for clients that need to generate income.

“My clients tend to come to me without having any REITs in their portfolio, and I tend to recommend that they have some,” says O’Reilly. “They work well for retirees or others looking to draw income on an ongoing basis because they tend to pay out at a higher rate than many other options.”

O’Reilly recommends some allocation to REITs for the majority of his clients, regardless of their income needs. He advises a minimum investment of 5%, but depending on the situation, “the allocation could be much more, just for the sake of diversification,” he notes. “They’ve had a pretty good run for a long time and their returns have been very solid.”

REITs have performed well historically and the fee-only planner believes that is sparking their growing popularity. “A percentage of the advisor population is looking for lower-correlated assets relative to stocks and bonds, in great part driven by 2008. Clients are looking for alternatives that are not that correlated with the stock market,” he explains, adding that REITs are particularly attractive for people who are looking for higher yields, which are difficult to find with stocks and bonds.

O’Reilly considers the client’s life stage and investment goals when making a REIT allocation recommendation. “For younger investors, it might be a range of 5 to 10 percent, but if a client is a retiree or someone who needs to live off of the portfolio to some degree, it might be higher than that,” he notes. “It depends on how much income you need and how much risk you want to take on, because in general, of course, the higher the payout, the higher the risk.