Expanding portfolio, real estate vs REITs, vs crowdfunding

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sasecool
Posts: 24
Joined: Fri Sep 02, 2016 7:16 am

Expanding portfolio, real estate vs REITs, vs crowdfunding

Post by sasecool » Sun Aug 19, 2018 9:23 am

Curious to hear what you guys think..

My portfolio is about 20% tiaacref traditional (3% vintage, + 1% per year so far), the rest is blend sp500 high mod low cap index, fidelity contrafund (all depending on which retirement account)

I am 35. I just started really putting away (physician just starting to make salary).

I have all of my tax sheltered stuff maxed out 403b, 457. Etc etc. Backdoor roth every year for me and my spouse. Just started putting away an extra 5-10k / month in addition.

My tiaa cref traditional is what I consider my 'backup risk averse portion of my portfolio'. I want to be very aggressive with the rest of my portfolio.

At some point I would like to start investing in real estate to go forward and diversify and have cash flow. I am not ready just yet to have a property, but I was thinking about doing something else in real estate.

I was considering doing crowdfunding real estate (realityshares). I was wondering what your all take on this was? I like the idea of cash flow and diversification...I know you cant do as well as the market right now, but who knows how long that will last. Plus it could all disappear in an instant.qq

I tried lending club (2500$ experiment) and I'm disappointed in that olatform... over a year I am doing about 4%. I've had a lot of defaults, which makes me concerned about real estate crowd funding. High risk low reward. I'm not sure of the default rate in real estate crowdfunding, it's not well published.

Real estate crowd funding sounds like a nice way to dip my feet in the water. On the other hand, maybe an reit maybe a better way while I build capital for a property.


Thoughts?

pkcrafter
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Re: Expanding portfolio, real estate vs REITs, vs crowdfunding

Post by pkcrafter » Sun Aug 19, 2018 9:35 am

Have you explored the White Coat Investor's website?

Here's are article on crowdfunding.

https://www.whitecoatinvestor.com/real- ... xperience/


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

sasecool
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Joined: Fri Sep 02, 2016 7:16 am

Re: Expanding portfolio, real estate vs REITs, vs crowdfunding

Post by sasecool » Sun Aug 19, 2018 10:46 am

Yes, but a little outdated.

Paul

Valuethinker
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Re: Expanding portfolio, real estate vs REITs, vs crowdfunding

Post by Valuethinker » Sun Aug 19, 2018 11:08 am

sasecool wrote:
Sun Aug 19, 2018 9:23 am
Curious to hear what you guys think..

My portfolio is about 20% tiaacref traditional (3% vintage, + 1% per year so far), the rest is blend sp500 high mod low cap index, fidelity contrafund (all depending on which retirement account)

I am 35. I just started really putting away (physician just starting to make salary).

I have all of my tax sheltered stuff maxed out 403b, 457. Etc etc. Backdoor roth every year for me and my spouse. Just started putting away an extra 5-10k / month in addition.

My tiaa cref traditional is what I consider my 'backup risk averse portion of my portfolio'. I want to be very aggressive with the rest of my portfolio.

At some point I would like to start investing in real estate to go forward and diversify and have cash flow. I am not ready just yet to have a property, but I was thinking about doing something else in real estate.

I was considering doing crowdfunding real estate (realityshares). I was wondering what your all take on this was? I like the idea of cash flow and diversification...I know you cant do as well as the market right now, but who knows how long that will last. Plus it could all disappear in an instant.qq

I tried lending club (2500$ experiment) and I'm disappointed in that olatform... over a year I am doing about 4%. I've had a lot of defaults, which makes me concerned about real estate crowd funding. High risk low reward. I'm not sure of the default rate in real estate crowdfunding, it's not well published.

Real estate crowd funding sounds like a nice way to dip my feet in the water. On the other hand, maybe an reit maybe a better way while I build capital for a property.


Thoughts?
There are tax issues with US investing in REITs and you need to be on top of those.

Crowdfunding strikes me as a great way to get hurt. Invest in something where you do not have enough information as the 3rd party investor, the borrowers have incentives to lie or omit material facts, and where there is no index for you to profit from via an index fund.

Shrug. It's your money. It's not a bad thing to own REITs, although at current valuation levels I doubt they will be stellar investments (that's true of all asset classes, right now, though).

Nate79
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Re: Expanding portfolio, real estate vs REITs, vs crowdfunding

Post by Nate79 » Sun Aug 19, 2018 11:10 am

So far I am liking Fundrise where I have a small portion of my portfolio to test the waters. But really too early to tell.

dcw213
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Re: Expanding portfolio, real estate vs REITs, vs crowdfunding

Post by dcw213 » Sun Aug 19, 2018 1:18 pm

I started Peer Street last year. I was attracted to the hard lending aspect of it (i.e. loans are backed by real estate) rather than the unsecured lending seen with Lending Club, Prosper, etc. I like the platform and customer service is pretty good but I am divesting as my loans liquidate.

The main reason for this is the fact that when I started, I was getting approx 6x risk free return for a 1 year duration, which I thought was worth the risk. Although rates have risen dramatically since I started, yield from the Peer Street loans have not risen. It seems demand is strong and its loans get bought up right away. Now my returns are only 2.5x risk free, not worth it to me.

I currently have 2 of my 20 loans in serious delinquency and feel like the company tries to hide it's non performing loans. All performing loans are listed for members to view but once it goes delinquent it is removed from the list. Seems sneaky at best and had made me sour once I realized. Defaults will happen of course, but I am put off by the lack of transparency about performance. I also called once to ask about the foreclosure process for my first serious delinquent loan and the rep couldn't really offer much insight regarding typical foreclosure timelines. I will probably not commit new money unless the yields return to 5-6x risk free.

Valuethinker
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Re: Expanding portfolio, real estate vs REITs, vs crowdfunding

Post by Valuethinker » Mon Aug 20, 2018 2:59 am

dcw213 wrote:
Sun Aug 19, 2018 1:18 pm
I started Peer Street last year. I was attracted to the hard lending aspect of it (i.e. loans are backed by real estate) rather than the unsecured lending seen with Lending Club, Prosper, etc. I like the platform and customer service is pretty good but I am divesting as my loans liquidate.

The main reason for this is the fact that when I started, I was getting approx 6x risk free return for a 1 year duration, which I thought was worth the risk. Although rates have risen dramatically since I started, yield from the Peer Street loans have not risen. It seems demand is strong and its loans get bought up right away. Now my returns are only 2.5x risk free, not worth it to me.

I currently have 2 of my 20 loans in serious delinquency and feel like the company tries to hide it's non performing loans. All performing loans are listed for members to view but once it goes delinquent it is removed from the list. Seems sneaky at best and had made me sour once I realized. Defaults will happen of course, but I am put off by the lack of transparency about performance. I also called once to ask about the foreclosure process for my first serious delinquent loan and the rep couldn't really offer much insight regarding typical foreclosure timelines. I will probably not commit new money unless the yields return to 5-6x risk free.
Nice summary of some of the key problems with such platforms.

A bank holds a lot of information about borrowers, which it does not disclose to its lenders (depositors). It buffers them from loss via its own balance sheet (equity capital) and regulation.

In peer-to-peer you don't have that.

If you were lending money as a private moneylender, then you would do extensive due diligence on the financial position of each borrower, the underlying property and its prospects. You'd act like a bank in other words. Down to managing a foreclosure process.

But in peer-to-peer we throw all that away and just lend on a platform.

IowaFarmBoy
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Re: Expanding portfolio, real estate vs REITs, vs crowdfunding

Post by IowaFarmBoy » Mon Aug 20, 2018 5:26 am

Do you have access to the TIAA Real Estate fund (since you have Traditional)? It is a solid way to invest in real estate. They have direct ownership of property versus owning an index of individual REITs.

sasecool
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Re: Expanding portfolio, real estate vs REITs, vs crowdfunding

Post by sasecool » Mon Aug 20, 2018 5:43 am

Yup...sounds like all of the things I worry about. Supposedly peerstreet has the best record with regards to never losing capital, but I'm not sure that's true anymore.

It all sounds sexy and exciting, but too high risk for reward it seems. It looks like the thought of taking out the middleman (bank) to save money for a win win is too idealistic...

Not seeing too much positive experiences here, huh, at least.

AlohaJoe
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Re: Expanding portfolio, real estate vs REITs, vs crowdfunding

Post by AlohaJoe » Mon Aug 20, 2018 5:52 am

The Bank of England (who admittedly has a dog in this fight) has written a few pretty scathing things about P2P lending on their blog this year.

The one I remember is "should peer to peer lending even exist in theory?"

"Economic theory says banks exist because they channel loanable funds more efficiently than individual savers and investors pairing up bilaterally. Those informational, diversification and maturity transformation considerations imply that banks should be able to out-compete peer to peer (P2P) lenders. The stylised fact that few P2P platforms have made a profit to date is in line with this theory."

https://bankunderground.co.uk/2018/06/0 ... in-theory/

I think crowdfunded real estate is a slightly different thing than P2P lending but even there.... I'm investing for a lifetime...I have no problem waiting three or five years to see how it actually works out in practice. If it something where it only has good returns for the first few years.... Then it feels more like a ponzi scheme than an investment anyway.

sasecool
Posts: 24
Joined: Fri Sep 02, 2016 7:16 am

Re: Expanding portfolio, real estate vs REITs, vs crowdfunding

Post by sasecool » Mon Aug 20, 2018 5:55 am

Yes, I forgot to mention that above, some of my blond at tiaa is in real estate... just not super thrilled about the return...I feel like we can do better in other areas, but maybe not worth the risk.

Valuethinker
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Joined: Fri May 11, 2007 11:07 am

Re: Expanding portfolio, real estate vs REITs, vs crowdfunding

Post by Valuethinker » Mon Aug 20, 2018 7:59 am

sasecool wrote:
Sun Aug 19, 2018 9:23 am
Curious to hear what you guys think..

My portfolio is about 20% tiaacref traditional (3% vintage, + 1% per year so far), the rest is blend sp500 high mod low cap index, fidelity contrafund (all depending on which retirement account)

I am 35. I just started really putting away (physician just starting to make salary).

I have all of my tax sheltered stuff maxed out 403b, 457. Etc etc. Backdoor roth every year for me and my spouse. Just started putting away an extra 5-10k / month in addition.

My tiaa cref traditional is what I consider my 'backup risk averse portion of my portfolio'. I want to be very aggressive with the rest of my portfolio.

At some point I would like to start investing in real estate to go forward and diversify and have cash flow. I am not ready just yet to have a property, but I was thinking about doing something else in real estate.

I was considering doing crowdfunding real estate (realityshares). I was wondering what your all take on this was? I like the idea of cash flow and diversification...I know you cant do as well as the market right now, but who knows how long that will last. Plus it could all disappear in an instant.qq

I tried lending club (2500$ experiment) and I'm disappointed in that olatform... over a year I am doing about 4%. I've had a lot of defaults, which makes me concerned about real estate crowd funding. High risk low reward. I'm not sure of the default rate in real estate crowdfunding, it's not well published.

Real estate crowd funding sounds like a nice way to dip my feet in the water. On the other hand, maybe an reit maybe a better way while I build capital for a property.


Thoughts?
sasecool wrote:
Sun Aug 19, 2018 9:23 am


My tiaa cref traditional is what I consider my 'backup risk averse portion of my portfolio'. I want to be very aggressive with the rest of my portfolio.
Here, and in many other contexts, one encounters doctors who used words like you use. "very aggressive with the rest of my portfolio".

The financial services industry makes a lot of money out of that sort of person. There are a lot of high risk investments than can be sold to people who are always looking for the inside track, the superior return etc. Such investors then usually take big hits in market downturns, and swear off these strategies - gambler's lament. (what happens here is they tend to disappear as posters - we are not exciting enough for them).

Nearly 4 decades of experience as an investor has made me very cautious, and very afraid. Any great investment idea can get killed. Any investor can do all the right things and be wiped out in the next bust. I have lived through 2 major housing busts (Canada and the UK) and seen what they do to people. I have lived through the worst single day market crash in recorded history (October 19, 1987) as well as a number of bear markets (1970s, 1990, 2000-03, 2008-09). I have really doubted whether the world financial system would survive the shock it had received (September - October 2008).

Mostly I have realized that the individual investor has no ability to "beat" the crowd. And costs matter.

Bill Bernstein is a consultant (neurologist) who discovered finance. All of his investment books are worth a read (he has posted here, historically, as wbern or as William Bernstein). The Intelligent Asset Allocator is seminal but also his book on deep risk.

If you want risk, hold Vanguard TSM. Equities are seriously risky. Seriously. The UK stock market dropped 80% in real terms in 1973-74. The logical counterbalance is a portfolio of TIPS bonds, which do protect against unexpected inflation.
Last edited by Valuethinker on Mon Aug 20, 2018 8:08 am, edited 3 times in total.

Valuethinker
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Re: Expanding portfolio, real estate vs REITs, vs crowdfunding

Post by Valuethinker » Mon Aug 20, 2018 8:04 am

sasecool wrote:
Mon Aug 20, 2018 5:55 am
Yes, I forgot to mention that above, some of my blond at tiaa is in real estate... just not super thrilled about the return...I feel like we can do better in other areas, but maybe not worth the risk.
In TIAA RE you have a top class industry team buying blue chip assets.

Additional returns will come from:

- higher gearing which means higher risk
- more risky types of assets which means higher risk - consider how retail mall properties were probably the safest blue chip in America - and now they are melting down
- luck

Since the first two involve higher risk, and the third one is not controllable, I would be cautious of seeking higher prospective returns. Risk is likely to show up just when you don't want it to.

The evidence is in the long run the Vanguard REIT index fund and TIAA RE track each other in performance (total return). There will be periods when one will outperform the other, and the TIAA RE fund should be less risky overall (greater weighting towards blue chip assets, less gearing). The lower volatility of TIAA RE is basically an optical illusion - the portfolio NAVs are calculated using backward looking appraisals of the value of assets whereas VNQ has the market's forward looking estimates embedded in it.

KlangFool
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Re: Expanding portfolio, real estate vs REITs, vs crowdfunding

Post by KlangFool » Mon Aug 20, 2018 8:13 am

sasecool wrote:
Sun Aug 19, 2018 9:23 am

My tiaa cref traditional is what I consider my 'backup risk averse portion of my portfolio'. I want to be very aggressive with the rest of my portfolio.
sasecool,

Why?

You have a very high annual income. If you save at a high rate and invest a significant amount of your savings, you will have plenty of money in a very short time period. There is no need for you to take the risk.

"Bulls make money, bears make money, pigs get slaughtered"

KlangFool

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BL
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Re: Expanding portfolio, real estate vs REITs, vs crowdfunding

Post by BL » Mon Aug 20, 2018 8:39 am

Dr Bernstein has written an excellent 16-page pdf for new investors. It is a great review for all of us:
https://www.etf.com/docs/IfYouCan.pdf

sasecool
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Re: Expanding portfolio, real estate vs REITs, vs crowdfunding

Post by sasecool » Mon Aug 20, 2018 9:07 am

All great replies.

When I say aggressive, I mean 100% stocks (indexes) in the portion of my portfolio which is not "guarenteed". This is planned, to crossover to a more balanced mix as I get older.

I've read a lot of those books you have mentioned. I adhere to a lot of those principles. However, I decided from the get go that I would use 5-10% of my future savings to "experiment" to satisfy my human nature of gambling, curiosity, beating the market, foolishness, whatever you want to call it.

If I wound up losing in these experiments, that's fine. If I wind up doing well, that's great. I just want to have a small section of my portfolio to actively manage, as for the most part, the rest of mine is on set it and forget it :)


Thanks for all of the replies!

AlohaJoe
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Re: Expanding portfolio, real estate vs REITs, vs crowdfunding

Post by AlohaJoe » Mon Aug 20, 2018 9:10 am

sasecool wrote:
Mon Aug 20, 2018 9:07 am
All great replies.

When I say aggressive, I mean 100% stocks (indexes) in the portion of my portfolio which is not "guarenteed".
Why don't you just put 120% or 150% in stocks if you want more risk?

sasecool
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Re: Expanding portfolio, real estate vs REITs, vs crowdfunding

Post by sasecool » Mon Aug 20, 2018 10:36 am

AlohaJoe wrote:
Mon Aug 20, 2018 9:10 am
sasecool wrote:
Mon Aug 20, 2018 9:07 am
All great replies.

When I say aggressive, I mean 100% stocks (indexes) in the portion of my portfolio which is not "guarenteed".
Why don't you just put 120% or 150% in stocks if you want more risk?
...because I have a certain amount I want to save according to my plan. This is the "extra" fluff, per se.

Valuethinker
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Re: Expanding portfolio, real estate vs REITs, vs crowdfunding

Post by Valuethinker » Mon Aug 20, 2018 11:21 am

sasecool wrote:
Mon Aug 20, 2018 9:07 am
All great replies.

When I say aggressive, I mean 100% stocks (indexes) in the portion of my portfolio which is not "guarenteed". This is planned, to crossover to a more balanced mix as I get older.

I've read a lot of those books you have mentioned. I adhere to a lot of those principles. However, I decided from the get go that I would use 5-10% of my future savings to "experiment" to satisfy my human nature of gambling, curiosity, beating the market, foolishness, whatever you want to call it.
Around here the next question is informally known as "The Nisiprius Question" for the poster who first posed it.

What, then, happens if you lose the "play money"? Do you invest another 5-10% of your savings in the next gamble? How many times are you willing to do that before you cry uncle?

Remember Warren Buffett's 3 rules of investing: Don't lose money. Don't lose money. Don't lose money.

If I think about my dot com era gambles in private companies, they were either write-offs or by the time I achieved realization (one just this year, so 19 year wait) I had far underperformed just investing them in a tracker (index) fund tracking quoted stocks.
If I wound up losing in these experiments, that's fine. If I wind up doing well, that's great. I just want to have a small section of my portfolio to actively manage, as for the most part, the rest of mine is on set it and forget it :)


Thanks for all of the replies!
See The Nisiprius Question, above.

sasecool
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Re: Expanding portfolio, real estate vs REITs, vs crowdfunding

Post by sasecool » Mon Aug 20, 2018 12:20 pm

Valuethinker wrote:
Mon Aug 20, 2018 11:21 am
sasecool wrote:
Mon Aug 20, 2018 9:07 am
All great replies.

When I say aggressive, I mean 100% stocks (indexes) in the portion of my portfolio which is not "guarenteed". This is planned, to crossover to a more balanced mix as I get older.

I've read a lot of those books you have mentioned. I adhere to a lot of those principles. However, I decided from the get go that I would use 5-10% of my future savings to "experiment" to satisfy my human nature of gambling, curiosity, beating the market, foolishness, whatever you want to call it.
Around here the next question is informally known as "The Nisiprius Question" for the poster who first posed it.

What, then, happens if you lose the "play money"? Do you invest another 5-10% of your savings in the next gamble? How many times are you willing to do that before you cry uncle?

Remember Warren Buffett's 3 rules of investing: Don't lose money. Don't lose money. Don't lose money.

If I think about my dot com era gambles in private companies, they were either write-offs or by the time I achieved realization (one just this year, so 19 year wait) I had far underperformed just investing them in a tracker (index) fund tracking quoted stocks.
If I wound up losing in these experiments, that's fine. If I wind up doing well, that's great. I just want to have a small section of my portfolio to actively manage, as for the most part, the rest of mine is on set it and forget it :)


Thanks for all of the replies!
See The Nisiprius Question, above.
Why do you have to keep ruining my fun with valid arguments :) the answer is that 5-10% is funds only moving forward, not to the exponential point of diminishing returns. The caveat is also, if I failed, I probably wouldn't want to keep doing that anyway :)

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