Then there is interest-rate risk, when older, interest-paying securities lose value because investors prefer newer ones with higher yields.
"In today's market we are primarily concerned about interest-rate risk and particularly how companies will fare in a 'bear flattening' of the yield curve, where short-term interest rates rise faster than long-term rates," Violin said. "This can be something of a double whammy for mREITs, as it hurts asset values as well as dividends."
But many mREIT advocates say the danger is not serious if rate increases are gradual and don't go too high, since mREITS will gradually replace older securities with newer ones that are more generous. The Federal Reserve has said it will raise rates, but slowly and modestly.
Among individual mortgage securities, the yields can go significantly higher than the ETFs that invest in dozens of mREITS. Some examples of publicly traded mREITS with double-digit yields, from REIT.com:
- AGNC Investment Corp (AGNC): 10.54 percent
- Annaly Capital Management (NLY): 10.27 percent
- Chimera Investment (CIM): 10.31 percent
- CYS Investments (CYS): 11.79 percent
- Drive Shack (DS): 11.88 percent
- Dynex Capital (DX): 10.43 percent
- New Residential Investment (NRZ): 11.33 percent
- Western Asset Mortgage Capital (WMC): 11.81 percent
"Mortgage REITS are generally stable investments in a rising interest-rate market," Shayanfekr said. But that doesn't guarantee good times, as the expected rise in mREIT yields can be dampened if higher mortgage rates cut the pace of lending, causing a shortage of new loans with higher yields. "As rates increase, it's true that the overall yield will increase, but you'll also see a decrease in home values and likely fewer qualified borrowers, meaning less mortgage loan product," he said.
Investors can protect themselves from interest-rate risk by purchasing mREITs that invest in adjustable-rate loans, since interest rates on those will go up as rates rise, increasing the mREIT yield. Examples include issues among commercial REIT and residential mortgage REIT niches:
- Blackstone Mortgage Trust (BXMT): 8.09 percent
- Starwood Property Trust (STWD): 8.54 percent
- AGNC Investment (AGNC): 10.54 percent
- AG Mortgage Investment Trust (MITT): 10.12 percent.
"Rising home-loan rates tend to benefit mREITs that hold floating-rate loans," Violin said. "We prefer the commercial real estate loan segment in particular, where floating-rate securities are more readily available and yields seem relatively attractive in some sub-segments."
Christopher Dukes, president of Dukes Wealth Management, based in Culver City, California, is also a fan of mREITS containing floating-rate loans but prefers those that own residential rather than commercial loans, because he finds residential loans can adjust to rising rates more quickly.
"I've seen returns in the 5-6.5 percent range in early 2017," he said. "Given that many fixed rate investments pay considerably less, this asset class is a nice addition for someone looking for income. ... Investors should expect a five to seven-year time frame to maximize return on their investment."
— By Jeff Brown, special to CNBC.com