In a piece in Friday's USA Today titled "There's still room for real estate funds to roam," columnist Jack Waggoner made the case for investing in real estate investment trusts (REITs). To his credit, he did point out that current yield on REITs of 3.78% is an all-time low for the funds since the National Association of Real Estate investment Trusts began tracking them in 1971. While he makes a good case for REITs based on the strength of the economy and the influx of new money, I won't be investing in the funds any time soon. Here's why:

The yield of 3.78% on REITs is less than 5.25% that you can get in a savings account from Emigrantdirect.com. By law, REITs must pay out at least 90% of their taxable income back to shareholders as dividends, and many of these funds have payout ratios over 100%, meaning that they aren't earning enough to cover their dividends. So these funds will not be able to grow organically by reinvesting earnings (they're paying it all back to shareholders). Their only means of growth will be taking on additional debt (many of these companies are already heavily leveraged) or seeing a rise in property values and rental prices for the properties they currently own and manage.

In essence, REITs, which were once a source of income, are now a speculative bet on a rise in real estate prices. The fact that the earnings are returned to shareholders (and taxed) makes them, in my opinion, and inefficient way to speculate on a real estate resurgence. Instead, I would look to home builders and supply companies that will benefit from a bull market in real estate. I think they have a good chance at outperforming REITS.