Why no love for REITs?

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Dominic
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Re: Why no love for REITs?

Post by Dominic »

grok87 wrote: Tue May 19, 2020 5:14 pm
Dominic wrote: Tue May 19, 2020 12:01 am I'm very on the fence about them.

I like the idea that REITs might have relatively low correlations to the general stock market, and I like that they should provide inflation protection.

However, I have read that REITs don't provide anything that can't be explained by the Fama-French equity model plus term and credit risk. Any time I've tried this, the R^2 is around 0.7. Not sure if that's normal for a sector, if I'm doing it wrong, or if REITs genuinely have special qualities.
one can play around with it here.
https://www.portfoliovisualizer.com/fac ... sisResults
if you use term and credit you have to start in 2010, not sure why.
if you use market, small and value on the vanguard reit fund you can go back to 6/1/1996.
that analysis shows reits with positive alpha against those factors. of course it may be period dependent.
That's what I've been using, but any of the factor sets I try come up with large alphas and relatively low R^2. I'm suspicious of the claim that REITs aren't a special asset class.
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Re: Why no love for REITs?

Post by abuss368 »

REITs are legally structured different, taxed different, must return 90% of income to shareholders, now have additional tax deduction benefits, and so forth.
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Re: Why no love for REITs?

Post by grok87 »

Dominic wrote: Tue May 19, 2020 7:18 pm
grok87 wrote: Tue May 19, 2020 5:14 pm
Dominic wrote: Tue May 19, 2020 12:01 am I'm very on the fence about them.

I like the idea that REITs might have relatively low correlations to the general stock market, and I like that they should provide inflation protection.

However, I have read that REITs don't provide anything that can't be explained by the Fama-French equity model plus term and credit risk. Any time I've tried this, the R^2 is around 0.7. Not sure if that's normal for a sector, if I'm doing it wrong, or if REITs genuinely have special qualities.
one can play around with it here.
https://www.portfoliovisualizer.com/fac ... sisResults
if you use term and credit you have to start in 2010, not sure why.
if you use market, small and value on the vanguard reit fund you can go back to 6/1/1996.
that analysis shows reits with positive alpha against those factors. of course it may be period dependent.
That's what I've been using, but any of the factor sets I try come up with large alphas and relatively low R^2. I'm suspicious of the claim that REITs aren't a special asset class.
i think if you choose custom factors of market, term and credit you get negative alpha. but it only starts in 2010 so may be period specific.
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Re: Why no love for REITs?

Post by abuss368 »

lakpr wrote: Sun May 10, 2020 8:07 am Highly tax inefficient, for one. Dividends from REITs are taxed as ordinary income.

Total stock market index has the REITs market-weighted already. No reason to overweight
REITs are now more tax friendly as they qualify for the QBI deduction under the Trump Tax Act of 2017.
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Re: Why no love for REITs?

Post by Dave55 »

abuss368 wrote: Sat Jul 04, 2020 10:00 pm
lakpr wrote: Sun May 10, 2020 8:07 am Highly tax inefficient, for one. Dividends from REITs are taxed as ordinary income.

Total stock market index has the REITs market-weighted already. No reason to overweight
REITs are now more tax friendly as they qualify for the QBI deduction under the Trump Tax Act of 2017.
Tony VNQI now yielding 8.6%, are you a buyer?

Dave
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Re: Why no love for REITs?

Post by abuss368 »

Dave55 wrote: Sun Jul 05, 2020 8:26 am
abuss368 wrote: Sat Jul 04, 2020 10:00 pm
lakpr wrote: Sun May 10, 2020 8:07 am Highly tax inefficient, for one. Dividends from REITs are taxed as ordinary income.

Total stock market index has the REITs market-weighted already. No reason to overweight
REITs are now more tax friendly as they qualify for the QBI deduction under the Trump Tax Act of 2017.
Tony VNQI now yielding 8.6%, are you a buyer?

Dave
I used to own but international real estate is not the same as US. A lot of international real estate is REOC and not REITs. It also collapsed during latest pullback much more than total market funds.

I think if one wants real estate outside of total market funds, US REITs are fine.
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Re: Why no love for REITs?

Post by Valuethinker »

Dave55 wrote: Sun Jul 05, 2020 8:26 am
abuss368 wrote: Sat Jul 04, 2020 10:00 pm
lakpr wrote: Sun May 10, 2020 8:07 am Highly tax inefficient, for one. Dividends from REITs are taxed as ordinary income.

Total stock market index has the REITs market-weighted already. No reason to overweight
REITs are now more tax friendly as they qualify for the QBI deduction under the Trump Tax Act of 2017.
Tony VNQI now yielding 8.6%, are you a buyer?

Dave
I would be that is a trailing yield not a prospective/ forecast?

Land Securities is the blue chip British REIT.

And its main assets are blue chip shopping malls (e.g. Bluewater mall in Kent) and prime City-of-London offices. So physical shopping and people sitting packed into air-conditioned offices. Something like 60% of its rental income (for shopping centres) was not paid in June 2020 quarter).

Right. And that's the best of the breed.

I wouldn't bet on the dividend yields being sustained.
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Re: Why no love for REITs?

Post by ralph124cf »

My reasoning for owning individual REITs (not REIT funds) is to get access to sectors of the economy that are seriously under-represented in the broad stock market. Two examples are farmland and timber.

Ralph
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Re: Why no love for REITs?

Post by Zillions »

ralph124cf wrote: Sun Jul 05, 2020 5:10 pm My reasoning for owning individual REITs (not REIT funds) is to get access to sectors of the economy that are seriously under-represented in the broad stock market. Two examples are farmland and timber.

Ralph
How do I find these REITS, Ralph? Thanks!

PurpleArc wrote: Wed May 13, 2020 9:00 am
abuss368 wrote: Wed May 13, 2020 8:45 am The international real estate market is definitely getting hit and hard. International REIT funds are typically not REIT funds but real estate companies, REOCs, and REITs that have a different (not same) legal, tax, and accounting structure as the US.
Could be true, my guess is that Singapore REITs (called S-REITs) are quite heavily (healthily) regulated. Tax-wise S-REITs dividends are not taxable.

The reason I mentioned S-REITs is because they are the biggest REITs in Asia.
Are S-REITS trading in the US? How to buy in the US?
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Re: Why no love for REITs?

Post by GoneOnTilt »

bikechuck wrote: Sun May 10, 2020 6:32 pm Many if not most REITS are invested in commercial real estate. I think that commercial real estate is going to be devastated in the coming months so I have no interest in owning more that what I have in my total market index fund.
Some of the biggest REITs in the S&P are cell tower REITs (like American Tower - think 5G); logistics real estate (like Prologis - think e-commerce, Amazon, etc); and data service centers (like Digital Realty - think cloud service providers).

It seems to me REITs are a great investment. These landlords are serving some of the fastest growing parts of our economy. I see no reason not to overweight REITs.
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Re: Why no love for REITs?

Post by abuss368 »

The Vanguard REIT dividend for the 4th quarter was higher than the 4th quarter of 2019. Those who have stayed the course are probably feeling better. In this low yield environment that is welcomed.

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Re: Why no love for REITs?

Post by nedsaid »

tvubpwcisla wrote: Sun May 10, 2020 8:01 am REITs seem like a great way to balance out a portfolio, they pay solid dividends, and have good long term performance. I don't see a lot of investors actively pursuing them. Are REITs a portfolio's best friend, or do they have a bunch of underlying issues an investor should be aware of?

:confused
I would recommend that if you invest in REITs that you use a REIT Index rather than trying to pick them individually. They are a perfectly good investment but they have been chased pretty hard in this low interest rate environment by people wanting income from their investments. REITs used to yield 6% to 8% and now the yield on the REIT Index is 3.52%. What I am trying to say is that REITs are relatively expensive now. I once was very enthusiastic about them but now am more or less neutral on them. I own Weyerhauser, which is a Timber REIT, and the stock is at all-time highs. I don't believe this to be a time to be piling in. Last I checked, the REIT index was trading at a premium to the value of the underlying properties. It could mean that Real Estate is overpriced or that the market expects Real Estate to rebound in price.
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Dioremius
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Re: Why no love for REITs?

Post by Dioremius »

For me, the rationale for investing in REITs (beyond their total stock market) is liability matching.

I have ongoing apartment rental expenses, and plans to buy my own place, so I want a fraction of my investments to change in tandem with "the housing market", as a hedge. So I allocated a (small) fraction of my asset allocation to this, and used it to buy residential REITs.

How? Well, I couldn't find any suitable ETF here: the closest is REZ (iShares Residential Real Estate Capped ETF), which actually holds a lot of decidedly non-residential REITs like self-storage and healthcare, as as weird stuff like mobile homes. Plus a 0.48% expense ratio.

So last year, I went over the top 25 REITs included in REZ, manually filtered them down to normal housing in metropolitan areas, and bought them all with market-cap weighting. Then I let it ride.

It's been a wild ride, with the impact of COVID on these REITs... But they moved pretty much in tandem with housing prices where I live (greatly amplified when measured in percentage move, which means that it's doing what I wanted despite being a small fraction of my AA).

Of course, this is a very imperfect proxy, since "metropolitan residential" is very different from my specific city and housing needs. But anecdotally I'm satisfied with the results, and can't think of any better proxy. Other than perhap real estate futures but that stuff is too weird for me.

BTW, the wild swings also gave me many opportunities for tax loss harvesting. How, when there are no TLH partners? By slowly rotating tax lots. If one of these stocks drops drastically, I can sell say 33% of it, wait 32 days, then buy it back, wait 32 days, sell another 33% (from the old high-basis lots), etc. Labor-intensive, so I didn't do it very much, but I did defer/save some taxes this way.

Also, with hindsight, I'm very happy that I focused on residential REITs as my rationale dictated, and didn't take the easier and supposedly-more-profitable path of just buying a wider-scoped REIT ETF that includes retail real estate (which got slaughtered in the COVID crisis).
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Re: Why no love for REITs?

Post by Aged Maduro »

I don't have much love for REITS because i am a real estate investor and i make more money by directly owning rental properties. With physical real estate, money is made through rent checks, appreciation, principal pay-down, depreciation and tax write offs. Since a REIT is a stock and not a real estate investment, all you get is the dividend payment and not in a tax efficient manner. REITs are also highly volatile just like other stocks, whereas properties typically act as an achor for the rest of my portfolio because the pricing is more stable over time.

Don't get me wrong, i have a lot of stock holdings too. It's just that if you are going to be investing in stocks there are usually better choices than individual REITs. If you don't want to have to deal with rental properties and want some exposure to the real estate space then Vanguard Real Estate Index VGSLX would be the best option. However, i think that even VTSAX has some real estate exposure within it so it may not be necessary.
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Re: Why no love for REITs?

Post by ronno2018 »

I think you need some REITs in your portfolio. I am currently following the personalcapital.com suggestion of 9.9% in "alternatives" which for me is ishares gold IAU ETF and VNQ ( https://investor.vanguard.com/etf/profile/VNQ ).

It has not done well this year but, man this year is wacked. Here's to a normal 2021...
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Re: Why no love for REITs?

Post by Marseille07 »

REITs are the best. Just B&H SRET. So much dividend income it's scary.
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Re: Why no love for REITs?

Post by AlohaJoe »

Marseille07 wrote: Sat Dec 26, 2020 7:21 pm REITs are the best. Just B&H SRET. So much dividend income it's scary.
SRET's return since inception is -5.23% a year. The 5-year return is -3.25% a year. The 3-year return is -14.91% a year. The 1-year return is -43.95%.

I'm not sure dividend income makes up for staggeringly massive losses like that.

34.43% of the distribution is a return of capital this year, getting your own money back, according to their December Form 19a filing.
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Re: Why no love for REITs?

Post by Marseille07 »

AlohaJoe wrote: Sat Dec 26, 2020 7:31 pm
Marseille07 wrote: Sat Dec 26, 2020 7:21 pm REITs are the best. Just B&H SRET. So much dividend income it's scary.
SRET's return since inception is -5.23% a year. The 5-year return is -3.25% a year. The 3-year return is -14.91% a year. The 1-year return is -43.95%.

I'm not sure dividend income makes up for staggeringly massive losses like that.

34.43% of the distribution is a return of capital this year, getting your own money back, according to their December Form 19a filing.
That's correct. They pay dividends but they hurt the bottom line in doing so. No one went rich collecting dividends.
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Re: Why no love for REITs?

Post by abuss368 »

Marseille07 wrote: Sat Dec 26, 2020 7:34 pm
AlohaJoe wrote: Sat Dec 26, 2020 7:31 pm
Marseille07 wrote: Sat Dec 26, 2020 7:21 pm REITs are the best. Just B&H SRET. So much dividend income it's scary.
SRET's return since inception is -5.23% a year. The 5-year return is -3.25% a year. The 3-year return is -14.91% a year. The 1-year return is -43.95%.

I'm not sure dividend income makes up for staggeringly massive losses like that.

34.43% of the distribution is a return of capital this year, getting your own money back, according to their December Form 19a filing.
That's correct. They pay dividends but they hurt the bottom line in doing so. No one went rich collecting dividends.
I may be missing something here.
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Re: Why no love for REITs?

Post by 000 »

Marseille07 wrote: Sat Dec 26, 2020 7:21 pm REITs are the best. Just B&H SRET. So much dividend income it's scary.
Whatever you do, don't do this.
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Re: Why no love for REITs?

Post by klaus14 »

One unrecognized positive for REITs is that they are resilient to corporate tax increases because they don't pay taxes as a company.
And If you hold them in a Roth IRA, you won't pay taxes either.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
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Re: Why no love for REITs?

Post by abuss368 »

000 wrote: Sat Dec 26, 2020 10:20 pm
Marseille07 wrote: Sat Dec 26, 2020 7:21 pm REITs are the best. Just B&H SRET. So much dividend income it's scary.
Whatever you do, don't do this.
Higher yield almost always means higher risk.

Tony
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Re: Why no love for REITs?

Post by abuss368 »

klaus14 wrote: Tue Feb 02, 2021 6:49 pm One unrecognized positive for REITs is that they are resilient to corporate tax increases because they don't pay taxes as a company.
And If you hold them in a Roth IRA, you won't pay taxes either.
Very true indeed. REITs have a higher yield and do not pay taxes. This is to align REITs in many of the same ways of direct real estate investing.

Tony
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Re: Why no love for REITs?

Post by 000 »

klaus14 wrote: Tue Feb 02, 2021 6:49 pm One unrecognized positive for REITs is that they are resilient to corporate tax increases because they don't pay taxes as a company.
And If you hold them in a Roth IRA, you won't pay taxes either.
Thanks for sharing. I hadn't thought about that angle. May be a good play if one thinks market is underpricing corp tax increases (I make no comment on whether that is likely to happen or not).
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Re: Why no love for REITs?

Post by abuss368 »

000 wrote: Tue Feb 02, 2021 7:42 pm
klaus14 wrote: Tue Feb 02, 2021 6:49 pm One unrecognized positive for REITs is that they are resilient to corporate tax increases because they don't pay taxes as a company.
And If you hold them in a Roth IRA, you won't pay taxes either.
Thanks for sharing. I hadn't thought about that angle. May be a good play if one thinks market is underpricing corp tax increases (I make no comment on whether that is likely to happen or not).
This may be priced into REITs (or perhaps not at this time).

Efficient Markets?

Tony
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Re: Why no love for REITs?

Post by 000 »

abuss368 wrote: Tue Feb 02, 2021 7:51 pm
000 wrote: Tue Feb 02, 2021 7:42 pm
klaus14 wrote: Tue Feb 02, 2021 6:49 pm One unrecognized positive for REITs is that they are resilient to corporate tax increases because they don't pay taxes as a company.
And If you hold them in a Roth IRA, you won't pay taxes either.
Thanks for sharing. I hadn't thought about that angle. May be a good play if one thinks market is underpricing corp tax increases (I make no comment on whether that is likely to happen or not).
This may be priced into REITs (or perhaps not at this time).

Efficient Markets?

Tony
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Re: Why no love for REITs?

Post by abuss368 »

000 wrote: Tue Feb 02, 2021 7:56 pm
abuss368 wrote: Tue Feb 02, 2021 7:51 pm
000 wrote: Tue Feb 02, 2021 7:42 pm
klaus14 wrote: Tue Feb 02, 2021 6:49 pm One unrecognized positive for REITs is that they are resilient to corporate tax increases because they don't pay taxes as a company.
And If you hold them in a Roth IRA, you won't pay taxes either.
Thanks for sharing. I hadn't thought about that angle. May be a good play if one thinks market is underpricing corp tax increases (I make no comment on whether that is likely to happen or not).
This may be priced into REITs (or perhaps not at this time).

Efficient Markets?

Tony
My time machine still hasn't returned from the manufacturer's warranty department.

Every time I call, their answering machine says they'll be open tomorrow, but they never are!
I think International REITs have had a harder time! Look at how beaten down they were in the COVID pandemic.

Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Why no love for REITs?

Post by Dr. Dad »

Just a reminder that Real Estate is well represented in the index funds many of us know and love.
For example look at the following sector weightings for Real Estate:
Vanguard Total Stock Index VTSAX 3.4%
Vanguard Small-Cap Index VSMAX 8.5%

Personally I decided against tilting further toward REITS.
But I can easily understand why someone might wish to do so.
Just another tilt options with valid arguments for and against.

DD
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Re: Why no love for REITs?

Post by ThriftyGeorge »

I love Reits. I finally dove in head first right after the decline this year. Realty Income(O), Stag, and LTC provide me monthly dividend income, among many other sectors, in my taxable portfolio. I hold VNQ and FREL in our 401ks. Is it tax inefficient to hold Reits in my taxable portfolio? The answer is yes...but my taxable account is designed completely around income for today, if I need it, not necessarily 30 years from now. I brought up my concerns about the higher tax implications to my financial advisor. He made a great point....”would you turn down a raise at work if it meant you would have to pay more taxes?” That put it into perspective for me. Some times taxes are part of the game. Tax efficiency is definitely important, but if you have to put it all in a tax advantaged account where you can’t touch it until retirement.....what’s the point!?

Everyone is so fearful of bonds and reits in a taxable account. I understand that..if you are using that account to save for retirement, but what if you want that account to provide you income for today? I hold Reits in my taxable and my tax advantaged accounts. I love Reits and they play a huge role in my income portfolio. If I need the money this month,...not 20-30 years from now in retirement...it’s there, and that’s a great feeling.
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Re: Why no love for REITs?

Post by mr_brightside »

I've got a decent amount of Realty Income (O) in both taxable and tax-deferred accounts

it's been good to me. they've done okay in spite of the pandemic.

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Re: Why no love for REITs?

Post by abuss368 »

ThriftyGeorge wrote: Tue Feb 02, 2021 8:16 pm I love Reits. I finally dove in head first right after the decline this year. Realty Income(O), Stag, and LTC provide me monthly dividend income, among many other sectors, in my taxable portfolio. I hold VNQ and FREL in our 401ks. Is it tax inefficient to hold Reits in my taxable portfolio? The answer is yes...but my taxable account is designed completely around income for today, if I need it, not necessarily 30 years from now. I brought up my concerns about the higher tax implications to my financial advisor. He made a great point....”would you turn down a raise at work if it meant you would have to pay more taxes?” That put it into perspective for me. Some times taxes are part of the game. Tax efficiency is definitely important, but if you have to put it all in a tax advantaged account where you can’t touch it until retirement.....what’s the point!?

Everyone is so fearful of bonds and reits in a taxable account. I understand that..if you are using that account to save for retirement, but what if you want that account to provide you income for today? I hold Reits in my taxable and my tax advantaged accounts. I love Reits and they play a huge role in my income portfolio. If I need the money this month,...not 20-30 years from now in retirement...it’s there, and that’s a great feeling.
I agree and have been building a passive income stream as well. REITS are a lot more tax friendly today after the 2017 Trump Tax Act. They qualify for a 20% deduction to better align with direct real estate investing.

Tony
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Re: Why no love for REITs?

Post by abuss368 »

mr_brightside wrote: Tue Feb 02, 2021 10:30 pm I've got a decent amount of Realty Income (O) in both taxable and tax-deferred accounts

it's been good to me. they've done okay in spite of the pandemic.

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I read an article that discussed Realty Income having a lot of leases up for renewal and some terms may not be favorable. I would consider the Vanguard REIT index fund.

Tony
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Re: Why no love for REITs?

Post by raiderjkwong »

I love REITS. I have owned O and STOR for many years and get 500.00 a month income from them. Best investment ever. The dividends earned have paid off my original capital investment so now I am playing with house money. I will never sell and get a check each money. I also own oil/gas pipelines that pay me an additional 2,400 a month. I love these income producing assets.
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Re: Why no love for REITs?

Post by abuss368 »

raiderjkwong wrote: Wed Feb 03, 2021 6:37 pm I love REITS. I have owned O and STOR for many years and get 500.00 a month income from them. Best investment ever. The dividends earned have paid off my original capital investment so now I am playing with house money. I will never sell and get a check each money. I also own oil/gas pipelines that pay me an additional 2,400 a month. I love these income producing assets.
Do you also own Vanguard International REIT?

Do you invest in the Vanguard High Dividend Yield funds?

Tony
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Re: Why no love for REITs?

Post by raiderjkwong »

No I don't..
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Re: Why no love for REITs?

Post by manlymatt83 »

raiderjkwong wrote: Wed Feb 03, 2021 6:37 pm I love REITS. I have owned O and STOR for many years and get 500.00 a month income from them. Best investment ever. The dividends earned have paid off my original capital investment so now I am playing with house money. I will never sell and get a check each money. I also own oil/gas pipelines that pay me an additional 2,400 a month. I love these income producing assets.
I am thinking of adding O in my “play” account (currently 3% of my portfolio and not part of my AA) as somewhere to keep some sidelined cash. In your experience should I also add STOR? The two seem to go hand in hand but I like the idea of the monthly dividend.
sksbog
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Re: Why no love for REITs?

Post by sksbog »

REITs are a very good tilt.
As mentioned in the bogleheads wiki, you can use them in tax advantaged accounts, like IRA or 401k, to enforce “ tax efficiency “
grok87
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Re: Why no love for REITs?

Post by grok87 »

sksbog wrote: Sun Feb 14, 2021 8:39 pm REITs are a very good tilt.
As mentioned in the bogleheads wiki, you can use them in tax advantaged accounts, like IRA or 401k, to enforce “ tax efficiency “
as abuss points out above, there is actually a case for holding them in taxable now...
RIP Mr. Bogle.
DVMResident
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Re: Why no love for REITs?

Post by DVMResident »

abuss368 wrote: Wed Feb 03, 2021 5:51 pm
ThriftyGeorge wrote: Tue Feb 02, 2021 8:16 pm I love Reits. I finally dove in head first right after the decline this year. Realty Income(O), Stag, and LTC provide me monthly dividend income, among many other sectors, in my taxable portfolio. I hold VNQ and FREL in our 401ks. Is it tax inefficient to hold Reits in my taxable portfolio? The answer is yes...but my taxable account is designed completely around income for today, if I need it, not necessarily 30 years from now. I brought up my concerns about the higher tax implications to my financial advisor. He made a great point....”would you turn down a raise at work if it meant you would have to pay more taxes?” That put it into perspective for me. Some times taxes are part of the game. Tax efficiency is definitely important, but if you have to put it all in a tax advantaged account where you can’t touch it until retirement.....what’s the point!?

Everyone is so fearful of bonds and reits in a taxable account. I understand that..if you are using that account to save for retirement, but what if you want that account to provide you income for today? I hold Reits in my taxable and my tax advantaged accounts. I love Reits and they play a huge role in my income portfolio. If I need the money this month,...not 20-30 years from now in retirement...it’s there, and that’s a great feeling.
I agree and have been building a passive income stream as well. REITS are a lot more tax friendly today after the 2017 Trump Tax Act. They qualify for a 20% deduction to better align with direct real estate investing.

Tony
This is true. OTOH tax laws do change and I would hate to be sitting on a pile of gains if these ever do revert to unqualified dividends as unwinding a position is expensive.

More tangible, VNQ (REITS) is yielding nearly 4x dividends over VOO (SP500); qualified or not, REITs will continue to experience a chronic tax drag significantly higher than similar gaining index funds.
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Re: Why no love for REITs?

Post by grok87 »

DVMResident wrote: Mon Feb 15, 2021 7:30 am
abuss368 wrote: Wed Feb 03, 2021 5:51 pm
ThriftyGeorge wrote: Tue Feb 02, 2021 8:16 pm I love Reits. I finally dove in head first right after the decline this year. Realty Income(O), Stag, and LTC provide me monthly dividend income, among many other sectors, in my taxable portfolio. I hold VNQ and FREL in our 401ks. Is it tax inefficient to hold Reits in my taxable portfolio? The answer is yes...but my taxable account is designed completely around income for today, if I need it, not necessarily 30 years from now. I brought up my concerns about the higher tax implications to my financial advisor. He made a great point....”would you turn down a raise at work if it meant you would have to pay more taxes?” That put it into perspective for me. Some times taxes are part of the game. Tax efficiency is definitely important, but if you have to put it all in a tax advantaged account where you can’t touch it until retirement.....what’s the point!?

Everyone is so fearful of bonds and reits in a taxable account. I understand that..if you are using that account to save for retirement, but what if you want that account to provide you income for today? I hold Reits in my taxable and my tax advantaged accounts. I love Reits and they play a huge role in my income portfolio. If I need the money this month,...not 20-30 years from now in retirement...it’s there, and that’s a great feeling.
I agree and have been building a passive income stream as well. REITS are a lot more tax friendly today after the 2017 Trump Tax Act. They qualify for a 20% deduction to better align with direct real estate investing.

Tony
This is true. OTOH tax laws do change and I would hate to be sitting on a pile of gains if these ever do revert to unqualified dividends as unwinding a position is expensive.

More tangible, VNQ (REITS) is yielding nearly 4x dividends over VOO (SP500); qualified or not, REITs will continue to experience a chronic tax drag significantly higher than similar gaining index funds.
i agree its not completely clear whether taxable or tax-exempt is best. i do 50/50 myself. part of my reasoning for holding in taxable is the ability to do tax loss harvesting as it's a volatile asset class
RIP Mr. Bogle.
investuntilimrich
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Re: Why no love for REITs?

Post by investuntilimrich »

Do you imagine housing will cost more or less in the future. I'm betting it will cost more. The unknown factor is commercial real estate like office buildings, will they ever come back to 100% even with a growing population? I'm guessing not soon and a highly (but not entirely) remote workforce will remain inplace resulting in leasing of smaller spaces. I'd like a REIT but not one heavy in commercial office space.
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Re: Why no love for REITs?

Post by raiderjkwong »

manlymatt83 wrote: Sun Feb 14, 2021 8:30 pm
raiderjkwong wrote: Wed Feb 03, 2021 6:37 pm I love REITS. I have owned O and STOR for many years and get 500.00 a month income from them. Best investment ever. The dividends earned have paid off my original capital investment so now I am playing with house money. I will never sell and get a check each money. I also own oil/gas pipelines that pay me an additional 2,400 a month. I love these income producing assets.
I am thinking of adding O in my “play” account (currently 3% of my portfolio and not part of my AA) as somewhere to keep some sidelined cash. In your experience should I also add STOR? The two seem to go hand in hand but I like the idea of the monthly dividend.
I love STOR too. it's the only REIT that Warren Buffet owns in BRK.B.
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Re: Why no love for REITs?

Post by abuss368 »

manlymatt83 wrote: Sun Feb 14, 2021 8:30 pm
raiderjkwong wrote: Wed Feb 03, 2021 6:37 pm I love REITS. I have owned O and STOR for many years and get 500.00 a month income from them. Best investment ever. The dividends earned have paid off my original capital investment so now I am playing with house money. I will never sell and get a check each money. I also own oil/gas pipelines that pay me an additional 2,400 a month. I love these income producing assets.
I am thinking of adding O in my “play” account (currently 3% of my portfolio and not part of my AA) as somewhere to keep some sidelined cash. In your experience should I also add STOR? The two seem to go hand in hand but I like the idea of the monthly dividend.
There is a lot of risk with individual stocks (and REITs). If you are so inclined to have an allocation in your portfolio to REITs, I would consider the Vanguard US REIT and Vanguard International REIT index funds.

Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Why no love for REITs?

Post by abuss368 »

grok87 wrote: Mon Feb 15, 2021 5:51 am
sksbog wrote: Sun Feb 14, 2021 8:39 pm REITs are a very good tilt.
As mentioned in the bogleheads wiki, you can use them in tax advantaged accounts, like IRA or 401k, to enforce “ tax efficiency “
as abuss points out above, there is actually a case for holding them in taxable now...
Hi grok87 -

Do you hold REITs in taxable and tax advantage?

Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Why no love for REITs?

Post by abuss368 »

DVMResident wrote: Mon Feb 15, 2021 7:30 am
This is true. OTOH tax laws do change and I would hate to be sitting on a pile of gains if these ever do revert to unqualified dividends as unwinding a position is expensive.

More tangible, VNQ (REITS) is yielding nearly 4x dividends over VOO (SP500); qualified or not, REITs will continue to experience a chronic tax drag significantly higher than similar gaining index funds.
Total Stock is yielding 1.38% per Vanguard’s website. REITs are yielding 2.51% (ignoring return of capital) and 3.31% with return of capital. This is hardly 4x the yield of Total Stock.

Tony
John C. Bogle: “Simplicity is the master key to financial success."
grok87
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Re: Why no love for REITs?

Post by grok87 »

abuss368 wrote: Mon Feb 15, 2021 9:18 pm
grok87 wrote: Mon Feb 15, 2021 5:51 am
sksbog wrote: Sun Feb 14, 2021 8:39 pm REITs are a very good tilt.
As mentioned in the bogleheads wiki, you can use them in tax advantaged accounts, like IRA or 401k, to enforce “ tax efficiency “
as abuss points out above, there is actually a case for holding them in taxable now...
Hi grok87 -

Do you hold REITs in taxable and tax advantage?

Tony
i basically do around 50% in taxaable and 50% in tax advantaged. it seems unclear which is best right now.
RIP Mr. Bogle.
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Re: Why no love for REITs?

Post by abuss368 »

grok87 wrote: Tue Feb 16, 2021 6:49 am
abuss368 wrote: Mon Feb 15, 2021 9:18 pm
grok87 wrote: Mon Feb 15, 2021 5:51 am
sksbog wrote: Sun Feb 14, 2021 8:39 pm REITs are a very good tilt.
As mentioned in the bogleheads wiki, you can use them in tax advantaged accounts, like IRA or 401k, to enforce “ tax efficiency “
as abuss points out above, there is actually a case for holding them in taxable now...
Hi grok87 -

Do you hold REITs in taxable and tax advantage?

Tony
i basically do around 50% in taxaable and 50% in tax advantaged. it seems unclear which is best right now.
Very true indeed.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Why no love for REITs?

Post by manlymatt83 »

Curious, would VNQ (or O, STOR, etc.) be a good hedge against a potential fall in large cap growth specifically? I am determined to stay the course, but given that my job and therefore my only income source is in tech AND I don’t own any real estate, I do worry that the total market is over valued due to LCG tech stocks. Given my IPS is 100% equity, I wonder if a REIT allocation might dampen any upcoming blow. I’d be willing to stick it out for life if it wasn’t too far off from a simple 3 fund allocation.
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Re: Why no love for REITs?

Post by 000 »

manlymatt83 wrote: Wed Feb 24, 2021 1:01 pm
Possibly but be warned that rising rates might hurt both LCG and real estate (less demand for real estate if mortgages are more expensive).
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Re: Why no love for REITs?

Post by manlymatt83 »

000 wrote: Wed Feb 24, 2021 3:51 pm
manlymatt83 wrote: Wed Feb 24, 2021 1:01 pm
Possibly but be warned that rising rates might hurt both LCG and real estate (less demand for real estate if mortgages are more expensive).
What about triple net corporate like $O in that case?
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