Do any of you have any strong opinions about REITs?  I’m trying to learn about them, but am finding the volume of information available a little overwhelming.

Be Sociable, Share!
  • Doug

    I looked into them at one point.  They’re very cool conceptually but after getting past the surface level I decided they weren’t for the casual investor.  As an example one might invest in Georgia storage units or something which frankly I know nothing about.  If you’re trying to just do a general real estate play you would have to invest in quite a few of them (diversifying both over region and kind of real estate).  That being said I seem to recall there’s an associated index and tracking stock (much like SPY for the S&P) which might be more practical if that’s really the goal.

  • Doug

    I got curious – looks like there’s quite a few now of one kind or another.

    Vanguard’s VNQ seems popular

    If you just want to make a general real estate investment without actually owning property that seems like as good a choice as any.

  • Bookworm

    Forbes recently had an article raving about their wonders, including the tax code requirement that they pay back huge returns to investors.  During the 1980s, though, I worked on bankruptcy cases involving all sorts of limited partnership investments in real property, and I don’t see that these are really distinct from those bubbles.  That’s why I’m curious.  There’s certainly a virtue, right now, as people are being dispossessed from homes to look into the rental market, and it’s nice not to be a direct landlord, but this just has the smell of another bubble to me.  The only problem is that I’m so pathologically risk averse, I’m incapable of distinguishing between reasonable risk and the dangerous kind.

  • Doug

    If volatility is going to make you nervous, I’d look elsewhere.  Looks like around October 2008 VNQ dropped from over 60 to below 30 in maybe a week, got almost to 20 by March 2009, and is now up almost to 60 again.  And remember, that’s the index – individual REITs would have bounced around more.  They’ve been on a tear the last two years but I wonder if that’s driven by this feeling that people think that real estate will recover, but nobody actually wants to own any themselves, so they’re pumping an artificial amount of money into the REITs.  Hard to say really, I’m not enough of an expert to really dig into it.

  • David Foster

    I’ve done a fair amount of REIT investing; current holdings include Simon Property Group (malls, including Lenox Square in Atlanta) and Prologis (warehouses). Publicly-traded REITs like these should be distingished from so-called “private REITs”, which are typically sold by investment advisors and have a questionable reputation in some quarters. REITs are required to pay out 90% of their net income as dividends; however, this doesn’t do any good unless there IS some net income!
    Some of the payout from REITs is typically considered “return of capital”…this has good aspects and bad aspects. The good part is that you don’t pay current taxes on this element of the dividends. The bad part is that when & if you do sell the stock, the cap gains you’ve been paid reduce your basis, so you have to pay additional capital gains…this adds tax complexity, but if the dividend tax rate winds up being higher than the cap gain rate, you still come out ahead.
    Closely related to REITs are Master Limited Partnerships, which typically own oil & gas pipelines, oil storage tanks, propane distribution networks, etc. Like REITs, MLPs are required to pay out most of their net income as dividends. An example of an MLP is Boardwalk Partners, which owns nat gas pipelines and storage facilities.
    I think both REITs and MLPs can be attractive investments when carefully analyzed: these things often have very complicated legal structures with partnerships owning percentages of other partnerships, etc, as well as the usual valuation issues. These are best viewed, IMNSHO, as long-term investments, not as something you want to trade frequently given the tax complexities.
    (None of the above, of course, should be considered investment advice..)

  • Bookworm

    And I don’t take it as investment advice, David, but instead as common sense observations from someone paying more attention than I have paid so far.

    I am the un-MBA, so to speak.  While I can discern large political and social trends, and have a very solid knowledge of how our legal system functions, the stock market, investments and taxes are a very murky area in my brain.

  • Earl

    I actually OWN the Vanguard REIT Index Fund.
    It’s a small % of a well-diversified portfolio that I’ve been working on since 1988 when we moved into the new house that we built with our own hands.
    The fund is quite volatile – from 1/1/2010 to 1/11/2010 it was up 23% (I converted to Admiral shares at that point, so don’t have figures for the rest of the year right here at the moment).  It also LOST a great deal back in 2007/2008.
    BUT, if you diversify and rebalance periodically, you’ll be buying more shares in your REIT fund when it’s cheap, and selling shares when they’re expensive (relative to other things in your portfolio).  Remember the old saying “Buy low and sell high”….well, if you’re disciplined, that’s what you do under this plan.
    It’s worked well for us.

  • Michaelneedsgrace

    You MUST go to Ray Lucia.  He has an investment strategy called “Buckets of Money.” It’s all backed up by research.  He’s not selling anything but his books which lay out an investment strategy which you must have in order for a succesful retiremnt.  (Trying to time yourself in and out of the market does not work.)  You can listen to  the show’s archives at the link below.  You’ll  find out very quickly that this guy knows what he’s talking and and he’s THE best financial advisor I’ve EVER heard anywhere.  He does workshops around the country which include an appearance by Ben Stien from time to time.  He knows everything about everything.  His radio and or podcasts feature a tax law attorney and another CFP with many any years of experience.  He has a couple of EXCELLENT books, the latest being “Ready Set Retire.”  (Don’t be fooled by the cheesy cover.)  He highly recommends REITS as part of his Buckets of Money investment strategy.  You can find out when his show actually airs live on the radio.  It doesn’t sound like it’s hard to get on the show right now but the word is quickly getting out about h im because he is simply the best and honest and genuine.  If you send him an email, they will answer you.  Call him and ask him ANY investment, tax, estate planning, realestate, social security, or financial question you have and he has a succinct answer.  He will not advise you about specific REITS on the air but off the air he or a member of what he calls the “Brain  Trust” will tell which ones he likes, which ones he invests in himself and why.  He will not try to sell you anything.  He’s on the air purely to answer peoples questions.  His signtiure line is “Your money, your business, and your life.”  Unlike Bloombert Radio, Ray Lucia and the Brain Trust are simply the best. A great bunch of guys to listen to.

    Go to his website at

    To hear podcasts:

  • Tonestaple

    Book, here’s a little primer from which is where I always go for a completely unfamiliar subject:   They do echo what others said about volatility and provide a nice graph showing this.  Other than this, my knowledge of REITs is nil


    Apologies for my interruption – just wanted to thank Earl for posting the ‘rice recipe’- very thoughtful.
    Thank you.

  • Earl

    @Michaelneedsgrace:  I know nothing of Ray Lucia or his book, so I’m not making any comments on the value of his investment advice.  However, a lot of bitter experience has taught me that no one “knows everything about everything.”  No one.
    The highly paid money managers whose full-time job is to choose stocks for mutual funds do not beat the index funds year after year.  Every year, a number of them do better than the indexes, but one never knows WHICH of the fund managers will be successful in any given year, and over the long haul, they all fall short.  Index funds also don’t charge high “loads”, so you aren’t paying out a big piece of your gains to a money manager every year.
    It stands to reason that even if you invest a GREAT deal of time in learning the investment game, the chances are  you will not be able to select individual stocks well enough to consistently beat the market – in other words, you will be “gambling” on picking winners.  If you love to follow the market (as my Dad did), than go for it.  But, if you’re bored by all of that (as I am), then it’s best to diversify among index funds in a number of asset classes, allocate by percentage of your investment capital, and rebalance periodically as your various holdings move up and down.  It’s not exciting, but it works better than any other strategy, if your goal is to grow your money with reasonable safety.
    You’re welcome, Sadie – and I’m just about to post a photograph of the apple dumplings that came out of the oven about 30 minutes ago!