REITS

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rafkg29
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REITS

Post by rafkg29 » Mon Jan 21, 2019 2:40 pm

Are REITS a good investment? And if so what is a fund that has seen growth over the years?

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arcticpineapplecorp.
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Re: REITS

Post by arcticpineapplecorp. » Mon Jan 21, 2019 2:53 pm

that's a pretty general question. The answer depends on some things.

1. while it gives you exposure to the real estate market in a sense, you're owning companies that deal in real estate. Therefore, it's often said you should think of REITS as parrt of your stock allocation and not something separate. Whereas the home you own would be part of your real estate holdings, not part of your stock allocation.

2. That being said, it does give you some additional exposure to real estate beyond what's in the total stock market index (which contains around 3% real estate) and/or your primary residence. That being said, you may have enough real estate already with whatever equity you own in your home. For instance, if you have $100,000 worth of equity in your home and $300,000 in equities and fixed income, then you've already got 25% of your portfolio in real estate and might not want/need more real estate exposure. If you're a renter, you might not have any exposure to real estate and might want to hold some real estate (and a REIT could be a way of doing that). The economy of the U.S. I believe is made up of around 20% or so real estate (maybe 25%?) so you want to factor in what equity you have in real estate so you don't overallocate to real estate by using REITS.

3. REITS are a passive investment as opposed to owning real estate (through rentals) which requires active management.

4. REITS should be owned in a tax deferred/tax free account rather than a taxable account because around 90% of the earnings are distributed inthe form of dividends, so you don't want a tax liability each year from your investment.

actually, instead why don't you just read the wiki about REITS:
https://www.bogleheads.org/wiki/Real_es ... ment_trust

the link at the end of this post is how it's done against the total stock market index fund back to inception 5/31/1996 (vanguard reit index fund admiral, vgslx). orange is reit, blue is total stock market. reit did better but was more volatile as you can see. And there was a period of time (1998-2001) when it did worse than the total U.S. stock market. And just because it did better overall, doesn't mean it WILL do better. Past performance is no guarantee (nor predictor) of future results.

Your question asks "What fund has seen growth over the years" but what you really want to know is what fund WILL see growth over the FUTURE years? Can't answer that. Whatever fund you own, it's generally the case that the lower the cost you pay, the more of what you make you get to keep. Vanguard's REIT index fund admiral shares cost 0.12% per year. That's $12 for every $10,000 you invest (per year). Pretty low cost to own a well diversified index that tracks real estate (commercial, residential, industrial, office, etc): https://investor.vanguard.com/mutual-fu ... file/VGSLX

source:
https://quotes.morningstar.com/chart/fu ... A%5B%5D%7D
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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willthrill81
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Re: REITS

Post by willthrill81 » Mon Jan 21, 2019 6:58 pm

rafkg29 wrote:
Mon Jan 21, 2019 2:40 pm
Are REITS a good investment? And if so what is a fund that has seen growth over the years?
You probably should read the Wiki. Here's the page that addresses REITs.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

KJVanguard
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Re: REITS

Post by KJVanguard » Mon Jan 21, 2019 9:27 pm

I'm rather fond of Vanguard Global ex-US Real Estate. Look at those valuations! Single digit P/E and selling below book value. Appears much more attractive than their (US) REIT Index. US REITs strike me as overvalued. Yes, I know terms like "over-valued" mean I am making a bet, but I'm willing to bet on assets that have more attractive valuations. I know I may lose that bet, but I'm still brave enough to bet.

I do own physical real estate, having 100% equity in my home that is supposedly worth $355,000. Of course, I don't feel that means I can't own more real estate. The fund I mention above gives me access to commercial real estate around the world. I would dare to say there is a vast difference between my home in suburban Milwaukee and a shopping mall in the UK or a storage facility in China and I certainly don't expect them to move in tandem. Of course, I wouldn't really even know if they were highly correlated as I don't have a ticker in my front yard giving real-time price quotes for my home.

livesoft
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Re: REITS

Post by livesoft » Mon Jan 21, 2019 9:50 pm

REIT index funds are sometimes a good investment, but other times they are not a good investment.

VNQ is a REIT index ETF. It has an average daily volume of about 8 million shares a day which I find amazing. It is a day trader's dream.
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travelogue
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Re: REITS

Post by travelogue » Tue Jan 22, 2019 9:30 pm

arcticpineapplecorp. wrote:
Mon Jan 21, 2019 2:53 pm
4. REITS should be owned in a tax deferred/tax free account rather than a taxable account because around 90% of the earnings are distributed in the form of dividends, so you don't want a tax liability each year from your investment.
REITs might be more viable in a taxable portfolio given the new 199A deduction. I'm not sure how this will play out in terms of reducing tax liability for most investors, but it's worth considering.

Thread: viewtopic.php?f=10&t=259922&p=4333790#p4333790

politely
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Re: REITS

Post by politely » Wed Jan 23, 2019 1:49 am

I like equity REITs. It's one way to invest in real estate, and to the extent real estate makes sense in your portfolio, REITs are more liquid and more convenient than physical property. However, although REITs and REIT funds are one- and two- (or more) steps removed from the actual properties, I think it makes sense to take the time to understand why you want to buy it, what you're buying, and whether the composition differences among REITs and among REIT funds matter to you (eg, sector, geography, etc).

livesoft wrote:
Mon Jan 21, 2019 9:50 pm
REIT index funds are sometimes a good investment, but other times they are not a good investment.
:happy

staustin
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Re: REITS

Post by staustin » Wed Jan 23, 2019 7:49 am

I held a 5% portfolio allocation to reits for many years.. thanks to the insight and wisdom of many on this board, i closed the position out for two reasons; klangfool's post in particular regarding reit's (going public and private) behavior and market index funds already include an allocation to reit's..

hale2
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Re: REITS

Post by hale2 » Wed Jan 23, 2019 1:59 pm

FWIW, Rick Ferri has long been a proponent of REITs and they are currently part of his Core 4 portfolios. He discusses them in his books and briefly on his website.

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arcticpineapplecorp.
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Re: REITS

Post by arcticpineapplecorp. » Wed Jan 23, 2019 8:45 pm

travelogue wrote:
Tue Jan 22, 2019 9:30 pm
arcticpineapplecorp. wrote:
Mon Jan 21, 2019 2:53 pm
4. REITS should be owned in a tax deferred/tax free account rather than a taxable account because around 90% of the earnings are distributed in the form of dividends, so you don't want a tax liability each year from your investment.
REITs might be more viable in a taxable portfolio given the new 199A deduction. I'm not sure how this will play out in terms of reducing tax liability for most investors, but it's worth considering.

Thread: viewtopic.php?f=10&t=259922&p=4333790#p4333790
thanks. was not aware of that. and am wondering myself if this makes a difference.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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travelogue
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Re: REITS

Post by travelogue » Wed Jan 23, 2019 9:03 pm

arcticpineapplecorp. wrote:
Wed Jan 23, 2019 8:45 pm
REITs might be more viable in a taxable portfolio given the new 199A deduction. I'm not sure how this will play out in terms of reducing tax liability for most investors, but it's worth considering.

Thread: viewtopic.php?f=10&t=259922&p=4333790#p4333790
thanks. was not aware of that. and am wondering myself if this makes a difference.
Still more expensive than QDI, but not *as* bad as before.

If I'm doing this correctly, ignoring state taxes for the moment, here's the difference in the 24% marginal tax bracket.

15% of $10,000 = $1,500.00 (QDI)
24% of (80% of $10,000) = $1,920.00 (with 199A deduction)
24% of $10,000 = $2,400.00 (taxed fully as ordinary income)

So, the 199A provision brings federal taxes down from 24% to 19.2% (but still up from 15% for QDI).

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arcticpineapplecorp.
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Re: REITS

Post by arcticpineapplecorp. » Wed Jan 23, 2019 9:27 pm

travelogue wrote:
Wed Jan 23, 2019 9:03 pm
arcticpineapplecorp. wrote:
Wed Jan 23, 2019 8:45 pm
REITs might be more viable in a taxable portfolio given the new 199A deduction. I'm not sure how this will play out in terms of reducing tax liability for most investors, but it's worth considering.

Thread: viewtopic.php?f=10&t=259922&p=4333790#p4333790
thanks. was not aware of that. and am wondering myself if this makes a difference.
Still more expensive than QDI, but not *as* bad as before.

If I'm doing this correctly, ignoring state taxes for the moment, here's the difference in the 24% marginal tax bracket.

15% of $10,000 = $1,500.00 (QDI)
24% of (80% of $10,000) = $1,920.00 (with 199A deduction)
24% of $10,000 = $2,400.00 (taxed fully as ordinary income)

So, the 199A provision brings federal taxes down from 24% to 19.2% (but still up from 15% for QDI).
thank you for doing the math!
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

harvestbook
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Re: REITS

Post by harvestbook » Fri Jan 25, 2019 8:44 am

I hold 5 percent REIT and 5 percent global REIT Vanguard funds. Even though the correlation with the stock market is rather high (around .70 as far as I can tell), it's still some diversification over the long haul. I've been debating getting into rentals but clicking a button is so much easier than dealing with humans.
I'm not smart enough to know, and I can't afford to guess.

Valuethinker
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Re: REITS

Post by Valuethinker » Fri Jan 25, 2019 9:09 am

KJVanguard wrote:
Mon Jan 21, 2019 9:27 pm
I'm rather fond of Vanguard Global ex-US Real Estate. Look at those valuations! Single digit P/E and selling below book value. Appears much more attractive than their (US) REIT Index. US REITs strike me as overvalued. Yes, I know terms like "over-valued" mean I am making a bet, but I'm willing to bet on assets that have more attractive valuations. I know I may lose that bet, but I'm still brave enough to bet.

I do own physical real estate, having 100% equity in my home that is supposedly worth $355,000. Of course, I don't feel that means I can't own more real estate. The fund I mention above gives me access to commercial real estate around the world. I would dare to say there is a vast difference between my home in suburban Milwaukee and a shopping mall in the UK or a storage facility in China and I certainly don't expect them to move in tandem. Of course, I wouldn't really even know if they were highly correlated as I don't have a ticker in my front yard giving real-time price quotes for my home.
REITs are not normally valued on a PE, but on dividend yield, because of the 90% payout rule.

Price to Book gets into IFRS vs. US GAAP on which I am no expert.

However the REIT structure is relatively rare outside the US. Where it does exist, I would expect valuation practices to be similar.

UK REITs only have an audited valuation once a year. There are also unaudited interim statements (6m). In between calculations of NAV make use of adjustments for movements in the appropriate indices of properties, which are based on (Trailing) transaction multiples.

You get down to much retail real estate in the UK, and there is literally no market for it - no sensible valuation base. The High Street is just melting that fast, with the traditional tenants either going broke (House of Fraser) or pulling out (Marks and Spencer).

dziuniek
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Re: REITS

Post by dziuniek » Fri Jan 25, 2019 9:10 am

Sure,

VNQ etf.

Valuethinker
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Re: REITS

Post by Valuethinker » Fri Jan 25, 2019 9:10 am

harvestbook wrote:
Fri Jan 25, 2019 8:44 am
I hold 5 percent REIT and 5 percent global REIT Vanguard funds. Even though the correlation with the stock market is rather high (around .70 as far as I can tell), it's still some diversification over the long haul. I've been debating getting into rentals but clicking a button is so much easier than dealing with humans.
AFAIK the global fund also includes real estate operating companies (REOCs). Those do not have the special tax structure, and are valued more like conventional stocks.

Think Helical Bar in the UK (developer) v. Land Securities (largest office owner).

European property tends to be owned directly by pension funds and insurance companies.

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