Are REITs better to purchase when interest rates are high or low?

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Wricha
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Re: Are REITs better to purchase when interest rates are high or low?

Post by Wricha » Sat Jan 12, 2019 9:17 pm

JoMoney wrote:
Fri Jan 11, 2019 3:26 am
Real estate is very capital intensive, requiring huge investments in property and building, to earn better returns on that investment it's typical to use a large amount of leverage/borrowed money.
When interest rates are high, the cost to carry that leverage is high and reduces the margins/profitability. It's much easier to earn money at low interest rates, it takes a leaner more efficient operation to earn a profit on borrowed money at higher interest rates.
So in that sense, when interest rates are low, and as long as they stay lower, REITs may be more profitable ... but if interest rates rise, having a lot of leverage will make it more difficult environment to operate in... but they'll likely be cheaper to buy.
So is it better to buy them when they're more profitable and more expensive, or less profitable and cheaper?
It depends... There are a multitude of factors, not the least of which is what direction are future interest rates going?
And when we say "better", better than what? What are the other options you're comparing it to, and how are interest rates impacting those investments?
Well said

fire4fun
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Re: Are REITs better to purchase when interest rates are high or low?

Post by fire4fun » Sat Jan 12, 2019 10:10 pm

abuss368 wrote:
Sat Jan 12, 2019 9:13 pm
fire4fun wrote:
Sat Jan 12, 2019 8:55 pm
abuss368 wrote:
Sat Jan 12, 2019 8:15 pm
KyleAAA wrote:
Sat Jan 12, 2019 3:54 pm
fire4fun wrote:
Fri Jan 11, 2019 4:55 pm


That's why you diversify geographically, providers, property type, investment niche, etc., all within real estate. REITs aren't "investing in real estate." You have zero control, don't get any of the tax incentives, and get washed down profits. You can't control financing options, cash out refinance, how the property is managed, purchase significantly below value, etc. with a REIT. Not even in the same universe. Go ahead and buy a REITs, you don't get any of the benefits of investing in real estate.

Warren Buffet has said that diversification is for those who don't know what they are doing. Diversification is a word that financial advisors and financial planners throw around a lot. Did you ever stop to think why they are all still working in their 60s? :wink:
I don’t know many financial advisors still working in their 60s, personally. As for your points, they are the same tired arguments real estate investors always make up post hoc to try to justify what they already decided. Of course REIT investors get the same tax advantages: do the math. The only difference is whose tax return the benefit goes on, but due to the legal structure of REITs that’s purely a formality. This notion of “control” is overrated and I would argue is actually a negative for 95% of real estate investors. All it buys you is the ability to ratchet risk up and down, but there are plenty of ways to achieve that with securities, so it’s not a net gain for RE investors. Of course REITs are “investing in real estate”and to suggest otherwise is absurd. The securitized nature of REITs adds a layer of liquidity on top, which has implications for the risk and return profile, but it is still investing in real estate.
Well said. REITs are taxed the same as direct real estate. A lot of folks don’t realize that.
This statement is false. The dividends that you earn on a REIT you will pay short or long capital gains taxes on. I've been investing real estate for over 11 years and despite consistently netting more than $5,000 of income into my bank account each and every month, I have still yet to pay taxes on rental real estate. Legally.

When you start paying zero taxes on your REIT income, call me. When I will be able to not pay any taxes on income from REITs, and not pay any taxes on capital gains via a 1031 exchange with a REIT, then I'll decide to invest in it.

The reality is, I control my leverage percentages (LTV), depreciation, and 1031 exchange the deals I want so that I never pay taxes on rental income nor capital gains. Can't control anything with a REIT. Just collect your -3% to 9% return and pony up on your taxes.

Please don't spread misinformation.
The “dividends” from REITs include three components: ordinary income, capital gains, and return of capital. I know of someone who had direct real estate for years. No mortgage and minimal depreciation and in great shape. Cash flow positive and taxed at ordinary rates. Same as a very large portion of a REITs dividend. Hopefully that helps!
Yeah, with no mortgage you would end up paying some taxes. I'm telling you of my personal situation where I use leverage specifically to combine with depreciation deduction so that I don't have to pay any taxes, despite positive income in my bank account every month which I live off of.

The tax treatment of direct real estate investment and REITs are not the same. Like I said, when you can start paying zero taxes on a REIT like I do on my rental income (for 11 years now), then get back to me. I have yet to pay any taxes on my real estate profits to date.

Do you know why Robert Kiyosaki and Donald Trump do not pay any net taxes (in their real estate businesses)? I'll give you a hint - it's not because they invest in REITs :wink:

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abuss368
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Re: Are REITs better to purchase when interest rates are high or low?

Post by abuss368 » Sat Jan 12, 2019 10:19 pm

fire4fun wrote:
Sat Jan 12, 2019 10:10 pm
abuss368 wrote:
Sat Jan 12, 2019 9:13 pm
fire4fun wrote:
Sat Jan 12, 2019 8:55 pm
abuss368 wrote:
Sat Jan 12, 2019 8:15 pm
KyleAAA wrote:
Sat Jan 12, 2019 3:54 pm


I don’t know many financial advisors still working in their 60s, personally. As for your points, they are the same tired arguments real estate investors always make up post hoc to try to justify what they already decided. Of course REIT investors get the same tax advantages: do the math. The only difference is whose tax return the benefit goes on, but due to the legal structure of REITs that’s purely a formality. This notion of “control” is overrated and I would argue is actually a negative for 95% of real estate investors. All it buys you is the ability to ratchet risk up and down, but there are plenty of ways to achieve that with securities, so it’s not a net gain for RE investors. Of course REITs are “investing in real estate”and to suggest otherwise is absurd. The securitized nature of REITs adds a layer of liquidity on top, which has implications for the risk and return profile, but it is still investing in real estate.
Well said. REITs are taxed the same as direct real estate. A lot of folks don’t realize that.
This statement is false. The dividends that you earn on a REIT you will pay short or long capital gains taxes on. I've been investing real estate for over 11 years and despite consistently netting more than $5,000 of income into my bank account each and every month, I have still yet to pay taxes on rental real estate. Legally.

When you start paying zero taxes on your REIT income, call me. When I will be able to not pay any taxes on income from REITs, and not pay any taxes on capital gains via a 1031 exchange with a REIT, then I'll decide to invest in it.

The reality is, I control my leverage percentages (LTV), depreciation, and 1031 exchange the deals I want so that I never pay taxes on rental income nor capital gains. Can't control anything with a REIT. Just collect your -3% to 9% return and pony up on your taxes.

Please don't spread misinformation.
The “dividends” from REITs include three components: ordinary income, capital gains, and return of capital. I know of someone who had direct real estate for years. No mortgage and minimal depreciation and in great shape. Cash flow positive and taxed at ordinary rates. Same as a very large portion of a REITs dividend. Hopefully that helps!
Yeah, with no mortgage you would end up paying some taxes. I'm telling you of my personal situation where I use leverage specifically to combine with depreciation deduction so that I don't have to pay any taxes, despite positive income in my bank account every month which I live off of.

The tax treatment of direct real estate investment and REITs are not the same. Like I said, when you can start paying zero taxes on a REIT like I do on my rental income (for 11 years now), then get back to me. I have yet to pay any taxes on my real estate profits to date.

Do you know why Robert Kiyosaki and Donald Trump do not pay any net taxes (in their real estate businesses)? I'll give you a hint - it's not because they invest in REITs :wink:
If an investor has direct ownership, depending on the individual circumstances, as noted above, the tax treatment may be similar to REITs from an ordinary income perspective. An excellent book to read is Ralph Block “Investing in REITs”. Recommend it!
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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abuss368
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Re: Are REITs better to purchase when interest rates are high or low?

Post by abuss368 » Sat Jan 12, 2019 10:21 pm

fire4fun wrote:
Sat Jan 12, 2019 10:10 pm
abuss368 wrote:
Sat Jan 12, 2019 9:13 pm
fire4fun wrote:
Sat Jan 12, 2019 8:55 pm
abuss368 wrote:
Sat Jan 12, 2019 8:15 pm
KyleAAA wrote:
Sat Jan 12, 2019 3:54 pm


I don’t know many financial advisors still working in their 60s, personally. As for your points, they are the same tired arguments real estate investors always make up post hoc to try to justify what they already decided. Of course REIT investors get the same tax advantages: do the math. The only difference is whose tax return the benefit goes on, but due to the legal structure of REITs that’s purely a formality. This notion of “control” is overrated and I would argue is actually a negative for 95% of real estate investors. All it buys you is the ability to ratchet risk up and down, but there are plenty of ways to achieve that with securities, so it’s not a net gain for RE investors. Of course REITs are “investing in real estate”and to suggest otherwise is absurd. The securitized nature of REITs adds a layer of liquidity on top, which has implications for the risk and return profile, but it is still investing in real estate.
Well said. REITs are taxed the same as direct real estate. A lot of folks don’t realize that.
This statement is false. The dividends that you earn on a REIT you will pay short or long capital gains taxes on. I've been investing real estate for over 11 years and despite consistently netting more than $5,000 of income into my bank account each and every month, I have still yet to pay taxes on rental real estate. Legally.

When you start paying zero taxes on your REIT income, call me. When I will be able to not pay any taxes on income from REITs, and not pay any taxes on capital gains via a 1031 exchange with a REIT, then I'll decide to invest in it.

The reality is, I control my leverage percentages (LTV), depreciation, and 1031 exchange the deals I want so that I never pay taxes on rental income nor capital gains. Can't control anything with a REIT. Just collect your -3% to 9% return and pony up on your taxes.

Please don't spread misinformation.
The “dividends” from REITs include three components: ordinary income, capital gains, and return of capital. I know of someone who had direct real estate for years. No mortgage and minimal depreciation and in great shape. Cash flow positive and taxed at ordinary rates. Same as a very large portion of a REITs dividend. Hopefully that helps!
Yeah, with no mortgage you would end up paying some taxes. I'm telling you of my personal situation where I use leverage specifically to combine with depreciation deduction so that I don't have to pay any taxes, despite positive income in my bank account every month which I live off of.

The tax treatment of direct real estate investment and REITs are not the same. Like I said, when you can start paying zero taxes on a REIT like I do on my rental income (for 11 years now), then get back to me. I have yet to pay any taxes on my real estate profits to date.

Do you know why Robert Kiyosaki and Donald Trump do not pay any net taxes (in their real estate businesses)? I'll give you a hint - it's not because they invest in REITs :wink:
Don’t forget this is a forum dedicated to low cost and passive investing. You may have a more rewarding experience on a pure real estate forum. I believe a direct real estate website is big pockets or deep pockets.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

fire4fun
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Re: Are REITs better to purchase when interest rates are high or low?

Post by fire4fun » Sat Jan 12, 2019 10:28 pm

abuss368 wrote:
Sat Jan 12, 2019 10:21 pm
fire4fun wrote:
Sat Jan 12, 2019 10:10 pm
abuss368 wrote:
Sat Jan 12, 2019 9:13 pm
fire4fun wrote:
Sat Jan 12, 2019 8:55 pm
abuss368 wrote:
Sat Jan 12, 2019 8:15 pm


Well said. REITs are taxed the same as direct real estate. A lot of folks don’t realize that.
This statement is false. The dividends that you earn on a REIT you will pay short or long capital gains taxes on. I've been investing real estate for over 11 years and despite consistently netting more than $5,000 of income into my bank account each and every month, I have still yet to pay taxes on rental real estate. Legally.

When you start paying zero taxes on your REIT income, call me. When I will be able to not pay any taxes on income from REITs, and not pay any taxes on capital gains via a 1031 exchange with a REIT, then I'll decide to invest in it.

The reality is, I control my leverage percentages (LTV), depreciation, and 1031 exchange the deals I want so that I never pay taxes on rental income nor capital gains. Can't control anything with a REIT. Just collect your -3% to 9% return and pony up on your taxes.

Please don't spread misinformation.
The “dividends” from REITs include three components: ordinary income, capital gains, and return of capital. I know of someone who had direct real estate for years. No mortgage and minimal depreciation and in great shape. Cash flow positive and taxed at ordinary rates. Same as a very large portion of a REITs dividend. Hopefully that helps!
Yeah, with no mortgage you would end up paying some taxes. I'm telling you of my personal situation where I use leverage specifically to combine with depreciation deduction so that I don't have to pay any taxes, despite positive income in my bank account every month which I live off of.

The tax treatment of direct real estate investment and REITs are not the same. Like I said, when you can start paying zero taxes on a REIT like I do on my rental income (for 11 years now), then get back to me. I have yet to pay any taxes on my real estate profits to date.

Do you know why Robert Kiyosaki and Donald Trump do not pay any net taxes (in their real estate businesses)? I'll give you a hint - it's not because they invest in REITs :wink:
Don’t forget this is a forum dedicated to low cost and passive investing. You may have a more rewarding experience on a pure real estate forum. I believe a direct real estate website is big pockets or deep pockets.
I appreciate that. However, I know that there are a lot of people on this forum who own real estate and invest in it and benefit from learning. We should know all of our options to invest, their upsides and downsides, etc. Unless you are just looking for an echo chamber where all the viewpoints that you read corroborate your own?

That other forum I'm not a fan of because it's too commercialized and the sheer amount of people on it guarantees that the quality will be low in aggregate.

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abuss368
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Re: Are REITs better to purchase when interest rates are high or low?

Post by abuss368 » Sat Jan 12, 2019 10:30 pm

fire4fun wrote:
Sat Jan 12, 2019 10:28 pm
abuss368 wrote:
Sat Jan 12, 2019 10:21 pm
fire4fun wrote:
Sat Jan 12, 2019 10:10 pm
abuss368 wrote:
Sat Jan 12, 2019 9:13 pm
fire4fun wrote:
Sat Jan 12, 2019 8:55 pm


This statement is false. The dividends that you earn on a REIT you will pay short or long capital gains taxes on. I've been investing real estate for over 11 years and despite consistently netting more than $5,000 of income into my bank account each and every month, I have still yet to pay taxes on rental real estate. Legally.

When you start paying zero taxes on your REIT income, call me. When I will be able to not pay any taxes on income from REITs, and not pay any taxes on capital gains via a 1031 exchange with a REIT, then I'll decide to invest in it.

The reality is, I control my leverage percentages (LTV), depreciation, and 1031 exchange the deals I want so that I never pay taxes on rental income nor capital gains. Can't control anything with a REIT. Just collect your -3% to 9% return and pony up on your taxes.

Please don't spread misinformation.
The “dividends” from REITs include three components: ordinary income, capital gains, and return of capital. I know of someone who had direct real estate for years. No mortgage and minimal depreciation and in great shape. Cash flow positive and taxed at ordinary rates. Same as a very large portion of a REITs dividend. Hopefully that helps!
Yeah, with no mortgage you would end up paying some taxes. I'm telling you of my personal situation where I use leverage specifically to combine with depreciation deduction so that I don't have to pay any taxes, despite positive income in my bank account every month which I live off of.

The tax treatment of direct real estate investment and REITs are not the same. Like I said, when you can start paying zero taxes on a REIT like I do on my rental income (for 11 years now), then get back to me. I have yet to pay any taxes on my real estate profits to date.

Do you know why Robert Kiyosaki and Donald Trump do not pay any net taxes (in their real estate businesses)? I'll give you a hint - it's not because they invest in REITs :wink:
Don’t forget this is a forum dedicated to low cost and passive investing. You may have a more rewarding experience on a pure real estate forum. I believe a direct real estate website is big pockets or deep pockets.
I appreciate that. However, I know that there are a lot of people on this forum who own real estate and invest in it and benefit from learning. We should know all of our options to invest, their upsides and downsides, etc. Unless you are just looking for an echo chamber where all the viewpoints that you read corroborate your own?

That other forum I'm not a fan of because it's too commercialized and the sheer amount of people on it guarantees that the quality will be low in aggregate.
We have had a lot of success with REITs for a very very long time. A lot of reading and education over the years. In the future they will hopefully provide a nice cash flow stream from “dividends” to retire from. We invest in Vanguard U.S. REIT and Vanguard International REIT. Many years ago we invested in individual REITs.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

fire4fun
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Re: Are REITs better to purchase when interest rates are high or low?

Post by fire4fun » Sat Jan 12, 2019 11:04 pm

abuss368 wrote:
Sat Jan 12, 2019 10:30 pm
fire4fun wrote:
Sat Jan 12, 2019 10:28 pm
abuss368 wrote:
Sat Jan 12, 2019 10:21 pm
fire4fun wrote:
Sat Jan 12, 2019 10:10 pm
abuss368 wrote:
Sat Jan 12, 2019 9:13 pm


The “dividends” from REITs include three components: ordinary income, capital gains, and return of capital. I know of someone who had direct real estate for years. No mortgage and minimal depreciation and in great shape. Cash flow positive and taxed at ordinary rates. Same as a very large portion of a REITs dividend. Hopefully that helps!
Yeah, with no mortgage you would end up paying some taxes. I'm telling you of my personal situation where I use leverage specifically to combine with depreciation deduction so that I don't have to pay any taxes, despite positive income in my bank account every month which I live off of.

The tax treatment of direct real estate investment and REITs are not the same. Like I said, when you can start paying zero taxes on a REIT like I do on my rental income (for 11 years now), then get back to me. I have yet to pay any taxes on my real estate profits to date.

Do you know why Robert Kiyosaki and Donald Trump do not pay any net taxes (in their real estate businesses)? I'll give you a hint - it's not because they invest in REITs :wink:
Don’t forget this is a forum dedicated to low cost and passive investing. You may have a more rewarding experience on a pure real estate forum. I believe a direct real estate website is big pockets or deep pockets.
I appreciate that. However, I know that there are a lot of people on this forum who own real estate and invest in it and benefit from learning. We should know all of our options to invest, their upsides and downsides, etc. Unless you are just looking for an echo chamber where all the viewpoints that you read corroborate your own?

That other forum I'm not a fan of because it's too commercialized and the sheer amount of people on it guarantees that the quality will be low in aggregate.
We have had a lot of success with REITs for a very very long time. A lot of reading and education over the years. In the future they will hopefully provide a nice cash flow stream from “dividends” to retire from. We invest in Vanguard U.S. REIT and Vanguard International REIT. Many years ago we invested in individual REITs.
Thanks for the book recommendation! Will check it out.

ThrustVectoring
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Re: Are REITs better to purchase when interest rates are high or low?

Post by ThrustVectoring » Sun Jan 13, 2019 2:45 am

Any easily knowable effect of interest rates on REITs will be baked into the price, so it doesn't/shouldn't matter. Generally speaking, though, earlier prices tend to be better than later.
Current portfolio: 60% VTI / 40% VXUS

goblue100
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Re: Are REITs better to purchase when interest rates are high or low?

Post by goblue100 » Mon Jan 14, 2019 8:41 am

nedsaid wrote:
Sat Jan 12, 2019 9:52 am
goblue100 wrote:
Fri Jan 11, 2019 11:08 am
international001 wrote:
Fri Jan 11, 2019 10:56 am
Is this a new BH philosophy? Don't time the market with stocks but do it with REITs?
It appears to me it is ok to time the bond market, and now the REIT market as well. At least based on the postings on this board. However, you can't time the stock market, but valuations do matter....
:oops:
'

Well, there are investments that are particularly interest rate sensitive like long term bonds, utilities, REITs. Why would an investor ignore this fact? Not saying we should try to predict interest rates but this should be taken into account when constructing a portfolio.
Passive investors take what the market gives them. The only way to get what the market gives is to "stay the course". This boards philosophy:
"Bogleheads® emphasize regular saving, broad diversification, and sticking to one's investment plan regardless of market conditions. We follow a small number of simple investment principles that have been shown over time to produce risk-adjusted returns far greater than those achieved by the average investor."

Everything else is just active investing by another name.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns

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nedsaid
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Re: Are REITs better to purchase when interest rates are high or low?

Post by nedsaid » Mon Jan 14, 2019 11:28 am

goblue100 wrote:
Mon Jan 14, 2019 8:41 am
nedsaid wrote:
Sat Jan 12, 2019 9:52 am
goblue100 wrote:
Fri Jan 11, 2019 11:08 am
international001 wrote:
Fri Jan 11, 2019 10:56 am
Is this a new BH philosophy? Don't time the market with stocks but do it with REITs?
It appears to me it is ok to time the bond market, and now the REIT market as well. At least based on the postings on this board. However, you can't time the stock market, but valuations do matter....
:oops:
'

Well, there are investments that are particularly interest rate sensitive like long term bonds, utilities, REITs. Why would an investor ignore this fact? Not saying we should try to predict interest rates but this should be taken into account when constructing a portfolio.
Passive investors take what the market gives them. The only way to get what the market gives is to "stay the course". This boards philosophy:
"Bogleheads® emphasize regular saving, broad diversification, and sticking to one's investment plan regardless of market conditions. We follow a small number of simple investment principles that have been shown over time to produce risk-adjusted returns far greater than those achieved by the average investor."

Everything else is just active investing by another name.
Well, that is just fine and dandy but there are times that staying the course for the sake of staying the course seems to be a bit ridiculous. Jack Bogle calculated back in 1999 that stocks would return 2% and bonds 6% to 7% over the next decade. Valuations and sentiment had gotten to such extremes that Bogle cut back his stocks and bought bonds. He called bonds "the steal of the century." Even the conservative John Bogle could not ignore what the markets were telling him.

A couple versions of the story, one was that he went from 70% stocks to 30% stocks. Another one is that he went from 70% stocks to 50% stocks over a couple of years. But in any case, he made a sizeable adjustment to his portfolio. In fairness, he was having health issues at the time and wasn't sure he would live much longer and that was another factor. But Mr. "Stay the Course" didn't quite stay the course and he admits to this.
A fool and his money are good for business.

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Re: Are REITs better to purchase when interest rates are high or low?

Post by KyleAAA » Mon Jan 14, 2019 7:14 pm

fire4fun wrote:
Sat Jan 12, 2019 10:10 pm
abuss368 wrote:
Sat Jan 12, 2019 9:13 pm
fire4fun wrote:
Sat Jan 12, 2019 8:55 pm
abuss368 wrote:
Sat Jan 12, 2019 8:15 pm
KyleAAA wrote:
Sat Jan 12, 2019 3:54 pm


I don’t know many financial advisors still working in their 60s, personally. As for your points, they are the same tired arguments real estate investors always make up post hoc to try to justify what they already decided. Of course REIT investors get the same tax advantages: do the math. The only difference is whose tax return the benefit goes on, but due to the legal structure of REITs that’s purely a formality. This notion of “control” is overrated and I would argue is actually a negative for 95% of real estate investors. All it buys you is the ability to ratchet risk up and down, but there are plenty of ways to achieve that with securities, so it’s not a net gain for RE investors. Of course REITs are “investing in real estate”and to suggest otherwise is absurd. The securitized nature of REITs adds a layer of liquidity on top, which has implications for the risk and return profile, but it is still investing in real estate.
Well said. REITs are taxed the same as direct real estate. A lot of folks don’t realize that.
This statement is false. The dividends that you earn on a REIT you will pay short or long capital gains taxes on. I've been investing real estate for over 11 years and despite consistently netting more than $5,000 of income into my bank account each and every month, I have still yet to pay taxes on rental real estate. Legally.

When you start paying zero taxes on your REIT income, call me. When I will be able to not pay any taxes on income from REITs, and not pay any taxes on capital gains via a 1031 exchange with a REIT, then I'll decide to invest in it.

The reality is, I control my leverage percentages (LTV), depreciation, and 1031 exchange the deals I want so that I never pay taxes on rental income nor capital gains. Can't control anything with a REIT. Just collect your -3% to 9% return and pony up on your taxes.

Please don't spread misinformation.
The “dividends” from REITs include three components: ordinary income, capital gains, and return of capital. I know of someone who had direct real estate for years. No mortgage and minimal depreciation and in great shape. Cash flow positive and taxed at ordinary rates. Same as a very large portion of a REITs dividend. Hopefully that helps!
Yeah, with no mortgage you would end up paying some taxes. I'm telling you of my personal situation where I use leverage specifically to combine with depreciation deduction so that I don't have to pay any taxes, despite positive income in my bank account every month which I live off of.

The tax treatment of direct real estate investment and REITs are not the same. Like I said, when you can start paying zero taxes on a REIT like I do on my rental income (for 11 years now), then get back to me. I have yet to pay any taxes on my real estate profits to date.

Do you know why Robert Kiyosaki and Donald Trump do not pay any net taxes (in their real estate businesses)? I'll give you a hint - it's not because they invest in REITs :wink:
The tax treatment is, in fact, the same. Read the tax code. It may appear not to be since REITs take on much less leverage than your average small investor, so they have much more cash flow and less interest expense to offset it with. But you can borrow and offset REIT dividends with your own interest expense if you so choose. It’s a bit more difficult and a bit riskier than with a traditional mortgage, but you can easily arrange your capital structure such that you pay no net tax on your REIT dividends if you so desire. Most REIT investors do not so desire . Depreciation charges also work the same way for REITs. As I said above, the fact that REITs trade on an exchange has implications for their risk and return profile, but the taxation is fundamentally the same. This is basic stuff. It’s great that you think having control is a huge advantage for you, but for the majority of investors it isn’t (and maybe isn’t even for you if you look at it objectively).

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Re: Are REITs better to purchase when interest rates are high or low?

Post by abuss368 » Mon Jan 14, 2019 7:47 pm

KyleAAA wrote:
Mon Jan 14, 2019 7:14 pm
The tax treatment is, in fact, the same. Read the tax code. It may appear not to be since REITs take on much less leverage than your average small investor, so they have much more cash flow and less interest expense to offset it with. But you can borrow and offset REIT dividends with your own interest expense if you so choose. It’s a bit more difficult and a bit riskier than with a traditional mortgage, but you can easily arrange your capital structure such that you pay no net tax on your REIT dividends if you so desire. Most REIT investors do not so desire . Depreciation charges also work the same way for REITs. As I said above, the fact that REITs trade on an exchange has implications for their risk and return profile, but the taxation is fundamentally the same. This is basic stuff. It’s great that you think having control is a huge advantage for you, but for the majority of investors it isn’t (and maybe isn’t even for you if you look at it objectively).
Hi KyleAAA -

Very well said and I appreciate the time to write the post.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

fire4fun
Posts: 91
Joined: Tue Dec 25, 2018 2:29 am

Re: Are REITs better to purchase when interest rates are high or low?

Post by fire4fun » Mon Jan 14, 2019 10:02 pm

KyleAAA wrote:
Mon Jan 14, 2019 7:14 pm
fire4fun wrote:
Sat Jan 12, 2019 10:10 pm
abuss368 wrote:
Sat Jan 12, 2019 9:13 pm
fire4fun wrote:
Sat Jan 12, 2019 8:55 pm
abuss368 wrote:
Sat Jan 12, 2019 8:15 pm


Well said. REITs are taxed the same as direct real estate. A lot of folks don’t realize that.
This statement is false. The dividends that you earn on a REIT you will pay short or long capital gains taxes on. I've been investing real estate for over 11 years and despite consistently netting more than $5,000 of income into my bank account each and every month, I have still yet to pay taxes on rental real estate. Legally.

When you start paying zero taxes on your REIT income, call me. When I will be able to not pay any taxes on income from REITs, and not pay any taxes on capital gains via a 1031 exchange with a REIT, then I'll decide to invest in it.

The reality is, I control my leverage percentages (LTV), depreciation, and 1031 exchange the deals I want so that I never pay taxes on rental income nor capital gains. Can't control anything with a REIT. Just collect your -3% to 9% return and pony up on your taxes.

Please don't spread misinformation.
The “dividends” from REITs include three components: ordinary income, capital gains, and return of capital. I know of someone who had direct real estate for years. No mortgage and minimal depreciation and in great shape. Cash flow positive and taxed at ordinary rates. Same as a very large portion of a REITs dividend. Hopefully that helps!
Yeah, with no mortgage you would end up paying some taxes. I'm telling you of my personal situation where I use leverage specifically to combine with depreciation deduction so that I don't have to pay any taxes, despite positive income in my bank account every month which I live off of.

The tax treatment of direct real estate investment and REITs are not the same. Like I said, when you can start paying zero taxes on a REIT like I do on my rental income (for 11 years now), then get back to me. I have yet to pay any taxes on my real estate profits to date.

Do you know why Robert Kiyosaki and Donald Trump do not pay any net taxes (in their real estate businesses)? I'll give you a hint - it's not because they invest in REITs :wink:
The tax treatment is, in fact, the same. Read the tax code. It may appear not to be since REITs take on much less leverage than your average small investor, so they have much more cash flow and less interest expense to offset it with. But you can borrow and offset REIT dividends with your own interest expense if you so choose. It’s a bit more difficult and a bit riskier than with a traditional mortgage, but you can easily arrange your capital structure such that you pay no net tax on your REIT dividends if you so desire. Most REIT investors do not so desire . Depreciation charges also work the same way for REITs. As I said above, the fact that REITs trade on an exchange has implications for their risk and return profile, but the taxation is fundamentally the same. This is basic stuff. It’s great that you think having control is a huge advantage for you, but for the majority of investors it isn’t (and maybe isn’t even for you if you look at it objectively).
I swim only in the soup that I am given. In my 11 years of investing in real estate with moderate and by no means a lot of leverage, I have yet to pay taxes on my rental real estate income. This is despite generating enough income to live off of. I'm not doing anything special, just following the tax code.

I do enjoy control as my individual property investments have given me the best returns. However, most of my recent stuff is invested in private capital/partnerships as I am getting too impatient and old to own individual properties, even with a property manager.

Go ahead and invest in a REIT and let me know if you pay any short or long-term capital gains on that 7% dividend. Let me know if you pay any taxes at all. While you're at it, let me know if that flight and rental car to Hawaii is text deductible as well ;)

Theoretically is different than the real world.

KyleAAA
Posts: 6858
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: Are REITs better to purchase when interest rates are high or low?

Post by KyleAAA » Mon Jan 14, 2019 10:59 pm

fire4fun wrote:
Mon Jan 14, 2019 10:02 pm
KyleAAA wrote:
Mon Jan 14, 2019 7:14 pm
fire4fun wrote:
Sat Jan 12, 2019 10:10 pm
abuss368 wrote:
Sat Jan 12, 2019 9:13 pm
fire4fun wrote:
Sat Jan 12, 2019 8:55 pm


This statement is false. The dividends that you earn on a REIT you will pay short or long capital gains taxes on. I've been investing real estate for over 11 years and despite consistently netting more than $5,000 of income into my bank account each and every month, I have still yet to pay taxes on rental real estate. Legally.

When you start paying zero taxes on your REIT income, call me. When I will be able to not pay any taxes on income from REITs, and not pay any taxes on capital gains via a 1031 exchange with a REIT, then I'll decide to invest in it.

The reality is, I control my leverage percentages (LTV), depreciation, and 1031 exchange the deals I want so that I never pay taxes on rental income nor capital gains. Can't control anything with a REIT. Just collect your -3% to 9% return and pony up on your taxes.

Please don't spread misinformation.
The “dividends” from REITs include three components: ordinary income, capital gains, and return of capital. I know of someone who had direct real estate for years. No mortgage and minimal depreciation and in great shape. Cash flow positive and taxed at ordinary rates. Same as a very large portion of a REITs dividend. Hopefully that helps!
Yeah, with no mortgage you would end up paying some taxes. I'm telling you of my personal situation where I use leverage specifically to combine with depreciation deduction so that I don't have to pay any taxes, despite positive income in my bank account every month which I live off of.

The tax treatment of direct real estate investment and REITs are not the same. Like I said, when you can start paying zero taxes on a REIT like I do on my rental income (for 11 years now), then get back to me. I have yet to pay any taxes on my real estate profits to date.

Do you know why Robert Kiyosaki and Donald Trump do not pay any net taxes (in their real estate businesses)? I'll give you a hint - it's not because they invest in REITs :wink:
The tax treatment is, in fact, the same. Read the tax code. It may appear not to be since REITs take on much less leverage than your average small investor, so they have much more cash flow and less interest expense to offset it with. But you can borrow and offset REIT dividends with your own interest expense if you so choose. It’s a bit more difficult and a bit riskier than with a traditional mortgage, but you can easily arrange your capital structure such that you pay no net tax on your REIT dividends if you so desire. Most REIT investors do not so desire . Depreciation charges also work the same way for REITs. As I said above, the fact that REITs trade on an exchange has implications for their risk and return profile, but the taxation is fundamentally the same. This is basic stuff. It’s great that you think having control is a huge advantage for you, but for the majority of investors it isn’t (and maybe isn’t even for you if you look at it objectively).
I swim only in the soup that I am given. In my 11 years of investing in real estate with moderate and by no means a lot of leverage, I have yet to pay taxes on my rental real estate income. This is despite generating enough income to live off of. I'm not doing anything special, just following the tax code.

I do enjoy control as my individual property investments have given me the best returns. However, most of my recent stuff is invested in private capital/partnerships as I am getting too impatient and old to own individual properties, even with a property manager.

Go ahead and invest in a REIT and let me know if you pay any short or long-term capital gains on that 7% dividend. Let me know if you pay any taxes at all. While you're at it, let me know if that flight and rental car to Hawaii is text deductible as well ;)

Theoretically is different than the real world.
I do not pay any taxes at all on that dividend and never have, correct. I am also not doing anything special, just following the tax code.

fire4fun
Posts: 91
Joined: Tue Dec 25, 2018 2:29 am

Re: Are REITs better to purchase when interest rates are high or low?

Post by fire4fun » Mon Jan 14, 2019 11:29 pm

KyleAAA wrote:
Mon Jan 14, 2019 10:59 pm
fire4fun wrote:
Mon Jan 14, 2019 10:02 pm
KyleAAA wrote:
Mon Jan 14, 2019 7:14 pm
fire4fun wrote:
Sat Jan 12, 2019 10:10 pm
abuss368 wrote:
Sat Jan 12, 2019 9:13 pm


The “dividends” from REITs include three components: ordinary income, capital gains, and return of capital. I know of someone who had direct real estate for years. No mortgage and minimal depreciation and in great shape. Cash flow positive and taxed at ordinary rates. Same as a very large portion of a REITs dividend. Hopefully that helps!
Yeah, with no mortgage you would end up paying some taxes. I'm telling you of my personal situation where I use leverage specifically to combine with depreciation deduction so that I don't have to pay any taxes, despite positive income in my bank account every month which I live off of.

The tax treatment of direct real estate investment and REITs are not the same. Like I said, when you can start paying zero taxes on a REIT like I do on my rental income (for 11 years now), then get back to me. I have yet to pay any taxes on my real estate profits to date.

Do you know why Robert Kiyosaki and Donald Trump do not pay any net taxes (in their real estate businesses)? I'll give you a hint - it's not because they invest in REITs :wink:
The tax treatment is, in fact, the same. Read the tax code. It may appear not to be since REITs take on much less leverage than your average small investor, so they have much more cash flow and less interest expense to offset it with. But you can borrow and offset REIT dividends with your own interest expense if you so choose. It’s a bit more difficult and a bit riskier than with a traditional mortgage, but you can easily arrange your capital structure such that you pay no net tax on your REIT dividends if you so desire. Most REIT investors do not so desire . Depreciation charges also work the same way for REITs. As I said above, the fact that REITs trade on an exchange has implications for their risk and return profile, but the taxation is fundamentally the same. This is basic stuff. It’s great that you think having control is a huge advantage for you, but for the majority of investors it isn’t (and maybe isn’t even for you if you look at it objectively).
I swim only in the soup that I am given. In my 11 years of investing in real estate with moderate and by no means a lot of leverage, I have yet to pay taxes on my rental real estate income. This is despite generating enough income to live off of. I'm not doing anything special, just following the tax code.

I do enjoy control as my individual property investments have given me the best returns. However, most of my recent stuff is invested in private capital/partnerships as I am getting too impatient and old to own individual properties, even with a property manager.

Go ahead and invest in a REIT and let me know if you pay any short or long-term capital gains on that 7% dividend. Let me know if you pay any taxes at all. While you're at it, let me know if that flight and rental car to Hawaii is text deductible as well ;)

Theoretically is different than the real world.
I do not pay any taxes at all on that dividend and never have, correct. I am also not doing anything special, just following the tax code.
In a taxable account? If so, I may have to add some REITs.

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