REITs as an investment?
What is the quantitative tldr of how REITs (real estate investment trusts) compare to stocks, bonds, or even property as an investment? Given such low bond yields, and some REITs with 6-8% dividends, it seems like there must be some major risk or poor expected performance that isn’t obvious to keep effective yield somewhat high :-/ I’d also expect their price to be anti-correlated with interest rates like bonds, but I don’t really see that in the past-a lot have pretty steady dividends and share prices over the last 10 years. How much if any of them do you have in your portfolio, esp if you’re trying to reduce risk? TC $700k
They’re in between long term bonds and stock in terms of risk/reward. They are highly (negatively) correlated with interest rates, like long term bonds. They go up and down with GDP like stocks. Anyone who has the S&P500 in their portfolio has some REIT exposure. Consider them if you don’t own a house already. Otherwise you’re likely overweight in real estate.
Thanks! Is it expected for their yield to be what looks like around 2x bond yields, and still cash flow neutral from what I could tell on their statements? Is that all based on a very high risk of future dividend cuts or value loss versus bonds? How would you compare them to investment property, which people swear by I guess largely due to cheap leverage but seems like a hassle! I do own a house with a mortgage so I have both enough real estate and enough debt lol for a balanced portfolio :-/
Both. Dividends may go down as rents go down. Likewise property values may go down. Consider $CXW and $GEO if you’re looking for yield.
REITs are also bad to own in taxable accounts. All the growth is in dividends (as opposed to capital gains), and REIT dividends are taxed at your marginal income tax rate (unlike qualified dividends, taxed at long-term capital gains) "Tier 1" above had great points. One thing I disagree with is that REITs don't give you exposure to housing prices. They give you exposure to rental prices. Eg: Bay Area house prices have increased a lot in the past few years, but rents haven't increased by as much.
Thanks, yeah I had heard that but ca taxes them the same and with recent tax change 47% on income isn’t looking as different from 28.8% on capital gains lol. Capital gains do let you hold until you live in a lower-tax state but that seems very long term and uncertain to plan for, for me at least. Bonds also aren’t better and I don’t want all this sap vanguard fund exposure :-(
I think you're underestimating the effect of capital gains letting you not pay taxes every year. There's a HUGE difference between paying taxes every year, versus paying cap gains at the end, even if your end and beginning tax rate is the same. Compounding and paying taxes upon liquidation after many years >> Paying taxes every year
Short them
REITs are great bit target 10% or higher yields and focus on low volatility.
Now we are doomed when the borrowers all are defaulting and REIT will crash. Man... REIT with dividend is going to zero. We need gov & banks to give emergency loans to business so they are not defaulting & not paying the rents. https://finance.yahoo.com/news/real-estate-billionaire-barrack-says-230309693.html
10-20%. Correlation is high since publicly traded. However in long run correlation breaks off