Investing in REITS and using the proceeds for rental

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Joined: Thu Feb 08, 2018 5:51 am

Investing in REITS and using the proceeds for rental

Post by rs397 » Thu Feb 08, 2018 6:35 am

I toyed with the idea of buying a condo for personal residence but I am slowly coming to the conclusion that I will be better off renting in the next several decades. Most importantly, renting will allow me to stay flexible and move to different places, if and when needed. Also, I don't enjoy maintaining a home. I do all my work remotely and could live anywhere in the US, or for that matter anywhere in the world.

In the mean time, I have started a separate category of savings that originally would have gone towards purchasing a condo, and I am now directing all of these savings to Vanguard Real Estate Index Fund(VGSLX) and VGRLX(Vanguard Global ex-US Real Estate Investment Index). I am using these funds as a proxy for the real estate market. I understand that buying REITS is not the same as owning real estate, and instead it is an ownership of stocks of companies that are involved in real estate. Further REITS are not even tied to residential real estate, and include other categories such as commercial real estate, retirement homes, malls, etc. Plus I understand that they are as volatile as stocks or perhaps worse as I experienced in 2008.

My question is if it is a good idea to create a separate corpus of $400,000 that would be exclusively invested in these two REIT index funds. I currently have $40k saved in these funds. Once I hit the target amount, I will plan to use the periodic proceeds to pay for renting apartments around the world. I mainly like the idea of a separate corpus to give me the motivation to save this money for the specific purpose of shelter expenses, and also that it may somehow be a hedge against change in shelter expenses in the future. Is this the right way of thinking about generating returns for shelter expenses? Or am I better off putting this money towards a balanced index fund such as VBIAX(60% stocks, 40% bonds) and just use the proceeds to fund my shelter expenses. Anything I should read up on, I looked for similar threads but couldn't find anything.

I do have a separate account where I have money allocated to my retirement savings. It is invested in 80% stocks and 20% Total Bond Index fund. The stocks are split in the following fashion: 60% VTSAX(Total Stock Market Index Fund), 30% VTIAX(International), and 10% VGSLX. Of course, I could also mingle all of my shelter fund with the rest of the portfolio and just stay the course with the fund options I currently have. Any advice would be appreciated.


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