Author Topic: REIT allocation for someone with no plans to own real estate anytime soon?  (Read 629 times)

FreelanceToFreedom

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I'm relatively young (mid-20s) and at this point in my life I have no plans to own a home. I enjoy the freedom to travel long-term and experience new areas, and I see myself kind of drifting for the foreseeable future (I freelance so have no geographical ties for work). This could of course change down the road, but I definitely don't plan to buy a home (or a rental property) anytime in the next 10+ years. I also don't think owning a home is necessarily a good investment, although it certainly can be (interesting article on that here: https://affordanything.com/is-renting-better-than-buying-should-i-rent-or-buy/)

With all that said, I'm wondering if it might make sense to increase my allocation of REITs in my portfolio. I just recently got into REITs with ~5% of my portfolio in a broad REIT ETF (USRT). I was already thinking about increasing this to 10% or so, but was doing some more research to find the best options (think I might go with REZ to avoid retail/mall exposure, and add a small % of international REITs like IFGL).

Now, I'm wondering if a slightly higher allocation might make sense, given the fact that I won't be owning any physical real estate anytime soon. Maybe 15%, with 10% US and 5% international?

I'm far from an expert in this so I'd be curious to hear from the community.

For reference, the rest of my portfolio is 100% equity index funds, with 85% US, 15% international

maizeman

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REITs and personally owned property behave quite differently in a portfolio. With a personal property, you generally either have an interest rate locked in for 30 years (with the option to refinance if interest rates fall, or to keep the existing rate if they rise) or no debt at all.

REITs have a lot of vulnerability to interest rate fluctuations because they cannot/do not have access to the same long term fixed rate debt.

If you won't want to/aren't in a position to own property that is completely okay, but I wouldn't let that situation convince you to skew the rest of your investment portfolio in any way to try to compensate.

Montecarlo

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I'm planning on investing in REITs when my top marginal rate is below 15%.  Otherwise I think you get more bang out of companies with equity appreciation.

Andy R

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With all that said, I'm wondering if it might make sense to increase my allocation of REITs in my portfolio.

REITs are are more like shares than privately owned residential property. They have market risk are much more highly correlated with stocks than with private residential real estate.
REITs are already in the total market index, there is no need to over-weight them without a specific reason.
If your reason is to replace private residential property, then the reason is not a sound one IMIHO.

beee

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REITs are already in the total market index, there is no need to over-weight them without a specific reason.

About 4% of Total US Market Index fund are REITs
« Last Edit: January 29, 2019, 03:29:49 PM by beee »