REIT’s can have cap gains too!. And while I haven’t completely or even semi-completely unpacked the new tax laws, individual rates have come down and for companies that structure their real estate investments as LLC’s, the pass-through deduction could represent a significant savings.
“In a well-diversfied portfolio, you should definitely have a % of your money in real estate and not just your house.”
really? says who? I don’t know why, but you seem to be particularly keen on pushing REIT’s.
And BTW- the 10 year return on the S&P 500 is 3 X’s, with similar stream of dividends.
Which is a LOT better than REIT’s 2X’s.
First, take a chill pill. Relax.
Second, REIT’s were mentioned and I decided to participate in the discussion. REIT’s were mentioned and I piped in. Are you trying to silence my opinion or the discussion of REIT’s?
Third, financial planners, college classes/textbooks and fund families like Fidelity, Vanguard, etc. recommend a balanced portfolio have a real estate component.
Fourth, not all stocks, bonds, Treasuries, REIT’s, investments, etc. increase/decrease in lock step. Let’s assume the S&P 500 went up 3x and ALL REIT’s went up 2x. So what? That’s the result of diversification. As I think you said, past performance is no guarantee of future performance
There are many investment categories to invest in and obviously real estate and REIT’s aren’t for everyone. Just like any investment, YMMV. Personally, I know 50, 60 and 70 year olds investing in real estate and REIT’s and making money. The real estate market is still great. You just have to prudent, be a smart picker, and realize that real estate has cycles.
“Third, financial planners, college classes/textbooks and fund families like Fidelity, Vanguard, etc. recommend a balanced portfolio have a real estate component.”
agreed.
but they do NOT say this
“In a well-diversfied portfolio, you should definitely have a % of your money in real estate and not just your house.”
sure sound like someone trying to push REITs to me.
btw, I’m not the only one on this thread pushing back on what you wrote.
For those close to retirement age, especially those whose homes amount to 50% of their net wealth, as is the case with some older folk here in Calif, I question the assertion that they " should" have additional $$ in real estate.
so no, I wont “chill”.
my hubby and I have 45+ years worth of experience in the real estate and property management profession, and have seen all the ups and downs. we are not beginner investors in either real estate or in the stock market.
I brought up REITs as a vehicle to invest in RE with reduced effort and risk and greater diversification vs. investing directly in local real estate. It’s one financial tool among many. They may or may not be appropriate for you. If you aren’t comfortable with them, that’s fine.
BTW, I googled around and it seems like plenty of financial advisors and institutions have recommendations about how much RE you should have in your portfolio, from a small amount to as high as 30%. There doesn’t seem to be a lot of science behind the percentage, but I think it is well understood that RE is somewhat decoupled from the normal business cycle, and doesn’t move in lockstep with stocks or interest rates. If you believe in asset allocation as an investment strategy then RE can be an important component.
There are good quality REITs paying 8%+ in dividends, that kind of yield is junk status for bonds.
BTW, S&P 500 return over the last 10 years is about 2X (1300 to 2800) not 3X. S&P 500 yield has averaged around 2%/year or a little less over the last 10 years. Many/most REITs do substantially better than this. REIT total return over long time frames generally exceeds the stock market (at least for the last 40 years or so).
As with any generalized statement, it’s not going to apply to everyone. Some or many of the folks here don’t have 50% of their wealth tied up in their personal residence.
OK, I’m outed. I’m making a commission from every sale here on CC. :)) 8-}
Yes, they do. But I’m choosing not to publish my curriculum vitae, because “experience” doesn’t always translate to success.
You can question my assertion. That’s your prerogative. Heck, our POTUS is in his 70’s and still investing in real estate. ;)) I know a couple of other 70-year olds who continue to invest in residential and commercial real estate. Two very smart people. I’ll continue to invest in a well-diversified portfolio of investments as long as I’m alive and I have money.
You do you. And I’ll do me. But please, don’t try to bully me. It’ll never work.
@notrichenough Thank you for facts. I was admittedly too lazy at the moment to check the rate of return for last 10 years of the S&P.
@sushiritto Curious as to how much of one’s net worth, inclusive of personal property (residence, any second home, etc.) is prudent to invest in real estate? Just a ballpark.
@doschicos I have no specific % to offer you. And even if I did, I’m sure I’d be attacked.
Some folks have a small investment in RE/REIT’s. Others invest a large amount of their wealth in RE/REIT’s, say like a real estate developer or someone who owns multiple rental properties. As @notrichenough mentions above, real estate has done well over a very long period of time.
Seattle, Denver, the SF Bay Area, etc. all have a limited supply of real estate on the market. And I don’t believe that’s going to change much in the future, over the long haul.
NPR recently had a story on Denver’s RE supply:
https://www.npr.org/2018/08/06/636112796/there-aren-t-enough-houses-on-the-market-to-meet-demand
One’s house is a highly undiversified real estate investment that is often highly leveraged (although it is not subject to the equivalent of a margin call). For many people, it unbalances their investment assets so much that their investment assets are undiversified regardless of what else they have.
Well, actually, if it is highly leveraged, I’d argue they don’t have that much exposure. The mortgage company does. But if the house loses money in an real estate downturn, yeah, there is certainly some risk. Those approaching retirement age often do have in imbalance with a lot of equity in their homes. Some of the big historical movements in real estate affect the market as a whole (often interest rate driven) so not sure how much diversification really helps with big fluctuations. Diversity does help in terms of bad loans but I’d guess most investors would consider themselves a decent risk for that part of their exposure.
My home’s value is less than 10% of my net worth. I don’t feel like I need more exposure to real estate than that. My guess is we have less exposure than average in terms of our home value vs. et worth. I’m not convinced that the average investor should have a substantial chunk of the net worth in real estate. I have some family members that do through investment properties but they are also playing to their strengths and have expertise in the area.
In the discussion here, a poster specifically asked for ideas on how to get some skin in the real estate game without having to flip or manage property so discussing REITs and RE sector funds is appropriate. I’m just not convinced that a blanket statement can be made that ALL investors need non-residential RE holdings in a well-diversified portfolio. In many cases, I think that results in an overexposure to the sector.
Here’s the Vanguard RE Index fund, and I’m using it for illustrative purposes only. I’m not recommending it and I don’t work for Vanguard. =))
https://investor.vanguard.com/mutual-funds/profile/performance/vgsix
Since it’s inception in 1996, it’s annualized after tax return is about 8.5%. As I said, we’re all built differently and we all have different risk tolerance levels. YMMV.
Real Estate Select Sector SPDR® Fund. https://us.spdrs.com/en/etf/real-estate-select-sector-spdr-fund-XLRE
“The Real Estate Select Sector SPDR® Fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Real Estate Select Sector Index (the “Index”)
The Index seeks to provide an effective representation of the real estate sector of the S&P 500 Index
Seeks to provide precise exposure to companies from real estate management and development and REITs, excluding mortgage REITs.”
What are people’s feelings about tax free municipal bonds with the caveat that they should not included or have a significant % of PRico bonds? We have to pay state income tax on ours but not federal.
^^Big fan of tax free bond funds for those with income in high tax states, i.e., California, NY…that’s where I park my ‘emergency’ cash and consider it part of my Asset Allocation.
An example:
https://investor.vanguard.com/mutual-funds/profile/overview/vclax
Those bonds that I have in taxable accounts I just put in Vanguard Intermediate-Term Tax-Exempt Fund. I don’t do specific state funds.
For a $200,000 house with a $160,000 mortgage, the homeowner has $200,000 of exposure to an undiversified real estate investment, while the lender or investor in the mortgage has $160,000 of exposure to default risk and interest rate risk.
However, $200,000 is probably a much larger percentage of the homeowner’s net worth than $160,000 is to the net worth of the lender or investor in the mortgage.
Since you asked, I don’t like muni bonds, mainly because I don’t trust state and local governments. The caveat of no Puerto Rico bonds is like having a caveat of excluding the next state or major city that gets into serious financial trouble. You don’t know now. Also, I believe they are priced (because they are most valuable) for people in the highest tax bracket, which is not me. I buy almost exclusively US Treasury bills, notes and bonds. They are exempt from state tax. It does pain me a little to own US Treasuries in my IRA where I am converting state tax exempt interest into fully taxable income (when I make an IRA withdrawal), but c’est la vie.
Muni bonds have ratings. Many municipalities are very astutely and conservatively managed and are very, very, very unlikely to become the next Puerto Rico. PR and its debt is a very long and complicated story.
Many municipalities are required by law to have a balanced budget. I always laugh when politicians, like Jeb Bush during the 2016 election, brag about having a balanced budget. Buddy, you had no choice in the matter. 
What’s interesting about Puerto Rican bonds is that they’ve gained 95% in just a few months:
Not sure why it is surprising that the junkiest (defaulted) bonds can be very volatile, including large gains when it appears that repayment becomes more likely.