the work you will have to do to manage your real estate is also worth money. that time could be spent doing other things

Hasn't the vanguard REIT been returning like 11% per annum for a decade?

Extremely true.

7.56 is the 10 year return according to Vanguards website. It's top 10 holdings are other REIT's so its expense ratio isn't really relevant at all since you're paying the expenses of the REIT's inside the pool.

I'm not saying that all REIT's are bad investments. I'm simply saying that you shouldn't buy into the idea that REIT's and real estate are in any way shape or form the same asset class. They are somewhat correlated but REIT's will have garbage returns compared to what can be generated by actively investing in Real Estate.

Vanguard US REIT performance:

https://personal.vanguard.com/us/fun...tExt=INT#tab=1


The bottom line is this:

REIT's can be a valuable part of an investment strategy, particularly if you don't have the time to directly invest in or manage real estate (like me). Any assertion buying REIT's is terrible is just wrong. Also, the argument that you're paying the REIT companies' expenses is just wrong - that's true of EVERY stock (or index fund) you buy. It's a question of expected return and diversification of asset classes.

An investor can clearly make a much better return directly investing in real estate, where you have direct control over the potential ROI, related expenses, etc. This of course assumes you have the ability to do it successfully, which just like starting any business is a pretty big assumption.

Directly comparing the two doesn't make much sense, they are completely different things - just both happen to be related to real estate. This would be like comparing starting a small business vs. investing in index funds.


The reality is that the average person shouldn't invest in real estate directly OR buy REIT's. They would get some nominal exposure to REIT's by just buying total market index funds.

Disclosure: I personally have somewhere between 5-7.5% of my portfolio in Vanguard REIT's (tax sheltered accounts). I don't own any real estate other than my home.

My mistake. Got confused.

I've seen a lot of posters at Bogleheads doing what Jax mentions as well. Seems pretty standard.

Can think of about 7.5 billion reasons, plus those over 60 who still have a good 30 years left in them!!

Cause a vast majority of them who own investment properties are asian foreigners and would be better throwing their money in the sea than investing in something they're completely ignorant about. When it comes to the financial markets many of them don't have a clue on what their doing but rely on rumours and tips. 99.9% of them wouldn't know the difference between and etf or mutual fund so where else would they put their money....

This question becomes interesting when you talk about intelligent investing in real estate vs real estate companies. At best you can buy real estate at a 30% discount. But with real estate companies you can potentially buy them at a much bigger discount?

Especially in Italy and France, and if you got the stomach, Hong Kong and Macau. you could buy companies owning real estate at even bigger discounts, with a lot less work. You would still have to do the initial research though.

there is an incredible amount of uninformed posters about REITs in this thread but this one is the cherry on top. you have no idea what you are talking about and obviously have a clear bias.
please tell me how as an individual investor, are you going to capitalize on Data Center ,healthcare and Self-Storage REITS, three of the best performing sectors over the last few years? are you going to build your own Data Center? contract your own hospital? how are you going to do that?
as an individual investor, your choices of what sort of RE you can invest in are extremely limited. houses, vacations properties, maybe a small trailer park or MFA. you are leaving yourself very concentrated on basically one sector of RE.
Buying REITs you can choose from over 10 different sectors of RE and you can buy and sell it with basically no fees, in a highly liquid market at the click of a button. how many people did you hear about in 2007 with 10+ properties who get ruined when they found themselves overexposed to an ill-liquid asset concentrated in one sector of RE that was getting hit the hardest.

posts like yours are one of the reasons I dont really post here anymore. please look up a chart of PSA EXR DLR QTS O NNN VTR and tell me those companies are outrageous scams with outrageous fees. you must be thinking of private REITs and generally yes they are terrible investments.

I've never looked into them in any detail: do REITs sometimes or often have some of the insanely self dealing structures in MLPs where the managers' cut escalates outrageously if anything great luck befalls the holdings?

Yeah that's kinda what I was getting at. There are definitely some REITs that perform. Most of the people I hear advocating overexposing real estate, seem like they'll end up in that situation. Very leveraged and illiquid, while saying managing their properties doesn't take up too much of their time.

not if you pick a well regarded REIT and read the proxy. no REIT is going to perform well overtime with some sort of self dealing structure like you are talking about.

obviously there is a lot of misinformation about REITs out there. one of the reasons that they are under followed is they fell under the MSCI Financials sector so they flew under the radar for most people. this has changed this month as they were given their own MSCI listing and are 3% of the total market. funds have had to buy REITs in 2016 to try to play catch-up to the break-out of the REIT index from financials. this is probably one of the reasons REITs have done so well this year.

the risk to REITs are that they are generally highly levered and their sensitivity to interest rates. you will get crushed owning REITs in a market crash because of the leverage on the mortgages that they hold and debt/equity on their balance sheets.

however, there are many REITs such as O VTR HCN that paid dividends all the way through the GFC in 2009 so they have sound business models to handle tough times.
REITs have outperformed the SPX for quite a long time and that is including a RE crash. I view them as a good way to add some exposure to RE in a very low-hassle way and will let you sleep well at night owning them. people are going to be going to hospitals and CVS to fill their prescriptions no matter what happens to the economy.

^^LOL^^CASE^^AND^^POINT

Investment property is a good idea...

You're a shameless troll, but not all investments are good ideas for all people. Whole life insurance can range from terrible to a critical piece of a portfolio. Without any sort of context or understanding it is difficult to really make any decision. Investment property is very broad, and REITS are quite different.

But you keep you. Maybe you'll learn them Euler diagrams at some point.