Author Topic: Anyone invest in REITs?  (Read 8621 times)

BTDretire

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Anyone invest in REITs?
« on: October 24, 2016, 09:07:18 AM »
I started to invest in few REITs in 2012.
I bought several more in 2015 and this morning added
some more of one I already own.
 I own NLY, CIM, DX, IVR, CYS, HCP, VTR, and ORC.
This is about 15% of my stache.
Dividend on todays price ranges from 4.3% to 15.7%,
with an average of dividend of 10.7%. Even more on my
original cost.
I added to NLY this morning when someone pointed out that
many sources have their dividend listed as 10.48%, when
it should say 11.8%. It got skewed by a recent purchase when they
only paid a partial quarterly dividend.

Anyone here invest in REITs?
Do you know of any discusion boards for REITs?

I used to read the yahoo message boards, but they seem to have done
away with that.

AM43

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Re: Anyone invest in REITs?
« Reply #1 on: October 24, 2016, 10:36:30 AM »
I invest in REITs.
Its about 10% of my total portfolio.
I dont invest in any individual REIT.
It's part of Vanguard REIT Index Fund.
Last couple years REITs have been performing well and returning over 10%.

Vagabond76

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Re: Anyone invest in REITs?
« Reply #2 on: October 24, 2016, 10:45:27 AM »
Most of those are mortgage REITs, which borrow money at short term rates to buy long term asset-backed paper.  These work out well if rates are steady for a long period or are going down.  They get slaughtered when rates go up.  Search Google for "Taper Tantrum" to see what mREITs did in 2013 while the rest of the market had its biggest gains in years.  They all cut the dividends and the prices tanked.

NLY, CIM, DX, IVR, CYS are all mREITs.  Of your list, only HCP and VTS actually own and invest in "real" estate.

Your post sounds as if you don't know what you are doing and you are chasing yield and are extremely undiversified.  I suggest you sell all the above and figure out what these companies actually do to make (or lose) money.

BTDretire

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Re: Anyone invest in REITs?
« Reply #3 on: October 24, 2016, 11:37:37 AM »
Most of those are mortgage REITs, which borrow money at short term rates to buy long term asset-backed paper.  These work out well if rates are steady for a long period or are going down.  They get slaughtered when rates go up.  Search Google for "Taper Tantrum" to see what mREITs did in 2013 while the rest of the market had its biggest gains in years.  They all cut the dividends and the prices tanked.

NLY, CIM, DX, IVR, CYS are all mREITs.  Of your list, only HCP and VTS actually own and invest in "real" estate.

Your post sounds as if you don't know what you are doing and you are chasing yield and are extremely undiversified.  I suggest you sell all the above and figure out what these companies actually do to make (or lose) money.
As I said, it's 15%, (actually less) of my stache, Most of it is in VTSAX,
but I have a more stocks, paper, telcom, bank and oil. I also have land contracts and
cash. So I have diversification, but I understand your concern.
 I have some big gains and the only reason I hesitate to take them, is because of the
great dividends.

Mighty-Dollar

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Re: Anyone invest in REITs?
« Reply #4 on: October 27, 2016, 08:56:58 PM »
Just remember, the higher the dividend the greater the risk. Investments have two components: dividends and underlying value of the investment. Often those high paying dividend REITS are lagging in the stock value department.
Also, investing in one REIT is riskier than investing in an index fund of many REITS (like VNQ).

teltic

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Re: Anyone invest in REITs?
« Reply #5 on: October 27, 2016, 11:08:47 PM »
Have you looked into private REITs? I threw $5000 into fundrise.com... I chose the growth REITs which is aimed to make 20 % ROI annually. It's too early to tell what will happen... But so far it has been cool to get updates on the company buying apartment complexes around.the US!

radram

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Re: Anyone invest in REITs?
« Reply #6 on: October 27, 2016, 11:12:48 PM »
I started to invest in few REITs in 2012.
I bought several more in 2015 and this morning added
some more of one I already own.
 I own NLY, CIM, DX, IVR, CYS, HCP, VTR, and ORC.
This is about 15% of my stache.
Dividend on todays price ranges from 4.3% to 15.7%,
with an average of dividend of 10.7%. Even more on my
original cost.
I added to NLY this morning when someone pointed out that
many sources have their dividend listed as 10.48%, when
it should say 11.8%. It got skewed by a recent purchase when they
only paid a partial quarterly dividend.

Anyone here invest in REITs?
Do you know of any discusion boards for REITs?

I used to read the yahoo message boards, but they seem to have done
away with that.

Are your dividends considered qualified, and taxed at the same rate as capital gains(a max of 20%), or are they taxed as regular income?

badbear

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Re: Anyone invest in REITs?
« Reply #7 on: October 28, 2016, 12:57:45 AM »
REIT dividends are always ordinary dividends by law.

Vagabond76

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Re: Anyone invest in REITs?
« Reply #8 on: October 28, 2016, 04:05:32 AM »
REIT dividends are always ordinary dividends by law.

This is not correct.

For mREITs, most of the distribution is taxed at ordinary rates, however a small portion could be taxed at qualified rates. For equity REITs, a portion of the distribution represents your portion of depreciation and is a nontaxable return of capital. I used to own a little AGNC and IVR in taxable accounts.

I still own a lot of Realty Income in a taxable account, and add to the position every month. The mix of taxable and nontaxable distribution averages out, at my tax bracket, like qualified dividend rates.

k9

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Re: Anyone invest in REITs?
« Reply #9 on: October 28, 2016, 06:30:15 AM »
I do invest in individual REITs, for about 20% of my invested wealth. No stock picking though, I just buy the biggest names, market cap wise. I don't see the point in using index funds for REITs, because those funds are only invested in a few stocks anyway, and buying the top 5 or top 10 holding of those funds lets me reproduce the performance of the index fund. Why pay fees and face counterparty risk when this can be avoided ?

I only own regular REITs, though. No mREITs or things like that. Companies that buy and rent real estate only.

I like how REITs, at the same time, offer a protection against inflation (as opposed to bonds) and produce a consistent income (as opposed to stocks and gold). I see them as straddling the fence between stocks, bonds and gold (yes, you must imagine a three-sided fence for this metaphor to make sense).

EDIT: I know a few investors who like real assets, like me, but prefer investing in cows rather than real estate. I don't, because I think cows don't straddle fences as well as REITs.

« Last Edit: October 28, 2016, 06:33:03 AM by k9 »

schneider

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Re: Anyone invest in REITs?
« Reply #10 on: October 28, 2016, 07:19:30 AM »
I do invest in individual REITs, for about 20% of my invested wealth. No stock picking though, I just buy the biggest names, market cap wise. I don't see the point in using index funds for REITs, because those funds are only invested in a few stocks anyway, and buying the top 5 or top 10 holding of those funds lets me reproduce the performance of the index fund. Why pay fees and face counterparty risk when this can be avoided ?

I hold about 10% of my assets in VGSNX (I lucked into the ability to buy it in a 401k, but VGSLX isn't so different), and I can name one advantage to an index fund: not having to think about what to buy. For me, that's worth the $5/year.

That said, the fact that I hold any REITs at all means I'm probably overthinking it.

I'd be personally unwilling to pursue mREITs for the reasons Qmavam outlined.

radram

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Re: Anyone invest in REITs?
« Reply #11 on: October 28, 2016, 07:40:03 AM »
REIT dividends are always ordinary dividends by law.

This is not correct.

For mREITs, most of the distribution is taxed at ordinary rates, however a small portion could be taxed at qualified rates. For equity REITs, a portion of the distribution represents your portion of depreciation and is a nontaxable return of capital. I used to own a little AGNC and IVR in taxable accounts.

I still own a lot of Realty Income in a taxable account, and add to the position every month. The mix of taxable and nontaxable distribution averages out, at my tax bracket, like qualified dividend rates.

I think I see.  So you are saying some of the "dividend" is actually a payback of your own money in the form of depreciation(not a taxable event), while some of it is taxed at normal income rates. Is that right?

So does that payback of your money then DECREASE your cost basis?  Is the sale of the REIT shares considered a capital gain(max 20% tax)?

k9

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Re: Anyone invest in REITs?
« Reply #12 on: October 28, 2016, 08:05:01 AM »
I hold about 10% of my assets in VGSNX (I lucked into the ability to buy it in a 401k, but VGSLX isn't so different), and I can name one advantage to an index fund: not having to think about what to buy. For me, that's worth the $5/year.
I totally understand that, although I'd rather take 5 minutes to read the top holdings of the fund and earn $5 per year for that.

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Re: Anyone invest in REITs?
« Reply #13 on: October 28, 2016, 08:09:03 AM »
REIT dividends are always ordinary dividends by law.

This is not correct.

For mREITs, most of the distribution is taxed at ordinary rates, however a small portion could be taxed at qualified rates. For equity REITs, a portion of the distribution represents your portion of depreciation and is a nontaxable return of capital. I used to own a little AGNC and IVR in taxable accounts.

I still own a lot of Realty Income in a taxable account, and add to the position every month. The mix of taxable and nontaxable distribution averages out, at my tax bracket, like qualified dividend rates.

I think I see.  So you are saying some of the "dividend" is actually a payback of your own money in the form of depreciation(not a taxable event), while some of it is taxed at normal income rates. Is that right?

So does that payback of your money then DECREASE your cost basis?  Is the sale of the REIT shares considered a capital gain(max 20% tax)?

I can't speak generally.... I only own a tiny slice of REIT.  But in my case, yes, they do.  The "dividends" are reported on my 1099 as "non-dividend distribution" and they absolutely do (per IRS) reduce your basis.

Bicycle_B

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Re: Anyone invest in REITs?
« Reply #14 on: October 28, 2016, 08:45:00 AM »
Curious about REITs, loving the discussion.  Thanks all for posting.

Vagabond76

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Re: Anyone invest in REITs?
« Reply #15 on: October 28, 2016, 10:46:26 AM »
REIT dividends are always ordinary dividends by law.

This is not correct.

For mREITs, most of the distribution is taxed at ordinary rates, however a small portion could be taxed at qualified rates. For equity REITs, a portion of the distribution represents your portion of depreciation and is a nontaxable return of capital. I used to own a little AGNC and IVR in taxable accounts.

I still own a lot of Realty Income in a taxable account, and add to the position every month. The mix of taxable and nontaxable distribution averages out, at my tax bracket, like qualified dividend rates.

I think I see.  So you are saying some of the "dividend" is actually a payback of your own money in the form of depreciation(not a taxable event), while some of it is taxed at normal income rates. Is that right?

So does that payback of your money then DECREASE your cost basis?  Is the sale of the REIT shares considered a capital gain(max 20% tax)?

For equity REITs, that is correct.  The portion of the distribution that is a nontaxable return of capital reduces your basis.  Any tax on that portion is deferred until you sell.  If you never sell and keep receiving the distributions the tax eventually goes away.  All assets including stock "step up" upon death.

Here is a couple year old article that explains the tax treatment of Realty Income distributions.  Other equity REITs work the same.    http://www.fool.com/investing/general/2014/01/22/taxes-what-realty-income-corp-shareholders-need-to.aspx

zephyr911

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Re: Anyone invest in REITs?
« Reply #16 on: October 28, 2016, 12:05:00 PM »
I've invested in HASI since shortly after its IPO, and currently have a bit over $10K in it. Planning to add as long as the financials look strong and the yield stays high enough. 100% is inside of IRAs to avoid tax complications.

radram

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Re: Anyone invest in REITs?
« Reply #17 on: October 28, 2016, 12:41:02 PM »
REIT dividends are always ordinary dividends by law.

This is not correct.

For mREITs, most of the distribution is taxed at ordinary rates, however a small portion could be taxed at qualified rates. For equity REITs, a portion of the distribution represents your portion of depreciation and is a nontaxable return of capital. I used to own a little AGNC and IVR in taxable accounts.

I still own a lot of Realty Income in a taxable account, and add to the position every month. The mix of taxable and nontaxable distribution averages out, at my tax bracket, like qualified dividend rates.

I think I see.  So you are saying some of the "dividend" is actually a payback of your own money in the form of depreciation(not a taxable event), while some of it is taxed at normal income rates. Is that right?

So does that payback of your money then DECREASE your cost basis?  Is the sale of the REIT shares considered a capital gain(max 20% tax)?

For equity REITs, that is correct.  The portion of the distribution that is a nontaxable return of capital reduces your basis.  Any tax on that portion is deferred until you sell.  If you never sell and keep receiving the distributions the tax eventually goes away.  All assets including stock "step up" upon death.

Here is a couple year old article that explains the tax treatment of Realty Income distributions.  Other equity REITs work the same.    http://www.fool.com/investing/general/2014/01/22/taxes-what-realty-income-corp-shareholders-need-to.aspx

Thanks for the link.  Very informative.

BTDretire

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Re: Anyone invest in REITs?
« Reply #18 on: October 29, 2016, 05:13:05 AM »
I started to invest in few REITs in 2012.
I bought several more in 2015 and this morning added
some more of one I already own.
 I own NLY, CIM, DX, IVR, CYS, HCP, VTR, and ORC.
This is about 15% of my stache.
Dividend on todays price ranges from 4.3% to 15.7%,
with an average of dividend of 10.7%. Even more on my
original cost.
I added to NLY this morning when someone pointed out that
many sources have their dividend listed as 10.48%, when
it should say 11.8%. It got skewed by a recent purchase when they
only paid a partial quarterly dividend.

Anyone here invest in REITs?
Do you know of any discusion boards for REITs?

I used to read the yahoo message boards, but they seem to have done
away with that.

Are your dividends considered qualified, and taxed at the same rate as capital gains(a max of 20%), or are they taxed as regular income?

 The dividends are non-qualified, best to have them in tax defered accounts, although I don't.
I've  been able to keep my taxes in the 2% to 5% range so this hasn't been a problem. It is
getting harder, between the dividends and some interest I get, plus I didn't have the kids as deductions, although both back at college now , so I might get them both back as deductions.
Supporting kids to get a deduction is not a good financial move. :-)

Torque

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Re: Anyone invest in REITs?
« Reply #19 on: November 01, 2016, 03:19:02 PM »
Distributions from REITs are treated as follows

1) Ordinary dividends (more common w/mREITs since equity REITs write-off large amounts of tax depreciation against earnings)
2) Capital Gain Dividend (when the REIT sells capital assets)
3) Return of capital (when the REIT distributes beyond earnings)

Mighty-Dollar

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Re: Anyone invest in REITs?
« Reply #20 on: November 03, 2016, 08:28:35 PM »
Quote
I own NLY, CIM, DX, IVR, CYS, HCP, VTR, and ORC.
This is about 15% of my stache.
If you're gonna buy that many REIT's then why didn't you just invest in VNQ the index fund????? To pay $160 more in transaction costs (buy and sell)?

catccc

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Re: Anyone invest in REITs?
« Reply #21 on: November 03, 2016, 09:58:55 PM »
Thinking of adding REITs to my portfolio.  Any pointers?  I have accounts with vanguard & fidelity.

protostache

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Re: Anyone invest in REITs?
« Reply #22 on: November 04, 2016, 06:40:20 AM »
Distributions from REITs are treated as follows

1) Ordinary dividends (more common w/mREITs since equity REITs write-off large amounts of tax depreciation against earnings)
2) Capital Gain Dividend (when the REIT sells capital assets)
3) Return of capital (when the REIT distributes beyond earnings)

Some REITs return qualified dividends because of what they invest in. Timber REITs, in particular.

MustacheAndaHalf

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Re: Anyone invest in REITs?
« Reply #23 on: November 04, 2016, 10:40:15 AM »
Vagabond76 - Wow, that's dedication in sticking it to the IRS.  "You can pry my cost basis from my dead body" kinda approach.  If REIT investments outpace other investments, don't you need to sell to rebalance?  Or maybe sell assets to cover expenses?

k9 - Paying a commission to buy stocks is like an expense ratio.  Someone following your approach might buy too little with each trade, and pay more in commissions than they would in expense ratios - assuming they sell the next year because they hear a better idea from someone else.  But if you buy large chunks of stock, and hold, you could beat the expense ratio over time.

There might not be much savings for most people.  Making up a $150k portfolio and seeing most people tilt 10%, say that's $15k REIT out of a $150k portfolio.  With $15k in Vanguard REIT (adm or ETF, 0.12% expense ratio) that works out to $18/year.  Not that much room for savings, especially for investors who pay $7/trade to buy shares of real estate companies.

Actually if you try this, have you considered motif investing?  That allows you to buy a basket of stocks you define for $10/trade.  So you'd select ~5-20 stocks in a basket, and buy all of them for $10.  If you have a very limited set of stocks that you treat as one block, maybe that approach could help.
« Last Edit: November 04, 2016, 10:42:09 AM by MustacheAndaHalf »

Vagabond76

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Re: Anyone invest in REITs?
« Reply #24 on: November 04, 2016, 12:40:09 PM »
Vagabond76 - Wow, that's dedication in sticking it to the IRS.  "You can pry my cost basis from my dead body" kinda approach. 

Fuck the IRS.

If REIT investments outpace other investments, don't you need to sell to rebalance? 

No, if you feel as if your portfolio is out of balance, use income sources (wages, dividends, etc.) to purchase other assets.  I feel well diversified with my portfolio of rental houses, dividend stocks, and index funds.

Or maybe sell assets to cover expenses?

Not if I own enough income-producing assets to fund my lifestyle.  I should never have to hit the "sell" button.

Vanguard REIT (adm or ETF, 0.12% expense ratio)

This fund tilts too much towards Simon Property Group...8% last I checked.  I don't like the mall concept as it does not seem to resonate with the younger generations.


chasesfish

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Re: Anyone invest in REITs?
« Reply #25 on: November 05, 2016, 06:19:34 AM »
I'm a fan of doing your research and owning individual REITs instead of a REIT index.

You're already buying diversity with a REIT.   Some REITs are much higher prices than others and you can manage your capital gains better with individual REITs. A decent size REIT already has 300+ income producing properties that are providing a diversified income stream.  You can also explore the balance sheet of that REIT for the amount of leverage it has and look at the rate it increases its dividends each year.   That speaks to its ability to find good projects that have increasing rents.

Disclosure:  I only own one right now, EPR.  I'm a buyer as long as the yield is above 5%.   They primarily invest in special purpose properties that bankers (like me) don't love (Movie Theatres, Waterparks, Charter Schools).


BTDretire

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Re: Anyone invest in REITs?
« Reply #26 on: November 05, 2016, 09:41:34 AM »
Quote
I own NLY, CIM, DX, IVR, CYS, HCP, VTR, and ORC.
This is about 15% of my stache.
If you're gonna buy that many REIT's then why didn't you just invest in VNQ the index fund????? To pay $160 more in transaction costs (buy and sell)?
   The answer is the dividend.
 VNQ has a dividend of 3.72%.
The dividends for what I have are below, at todays price. Some were higher at the prices I paid.
CYS=11.9%, DX=12.77%, CIM=12%, IVR=10.9%, ORC=15.6%, NLY= 10.4%,
HCP=5% and VTR=4.6%.
 I'm not making any recommendations, these have been good to me. But things do happen.
  I'm down $7k in HCP in the last month after a sale of a bunch of their properties, I had a large gain so, I'm still slightly ahead on share price, and it's starting to come back.
ORC has been great, I bought it paying 18% dividend, I now have 27% share price gain. On the other hand, I'm down 24% in IVR.
 I do find these are volatile, and can go up or down 2% or 3% in a day.
 I think I'm learning that you should take the cap gains when you have them, because they do seem to cycle, now if only I could put that into practice. :-)
 I'm finding it hard to sell a stock that pays a large dividend.
 Also note, I'm not relying on these for income, we are still working and have plenty
to put into more investments, if they went down I will be OK. YMMV.
 Another option is the prefered stock of the REITS, ~ 7% to 8% returns, a little safer,
but more thinly traded, so if you need to sell, you could get caught on a bad day.
 Re: the cost, I pay $14 round trip commission, on a $35k transaction, that's only
.04% right in there with Vanguard.

Davids

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Re: Anyone invest in REITs?
« Reply #27 on: November 05, 2016, 12:55:32 PM »
I have some bones in VNQ as part of of my vanguard ETF startegy. Seems to be on a bit of a downswing right now but no biggy, it is all long term.

zephyr911

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Re: Anyone invest in REITs?
« Reply #28 on: November 14, 2016, 02:21:03 PM »
Vagabond76 - Wow, that's dedication in sticking it to the IRS.  "You can pry my cost basis from my dead body" kinda approach. 
Fuck the IRS.
That's like saying "fuck cops" because your city passed a law you don't like. The IRS just enforces policies enacted by Congress.

triangle

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Re: Anyone invest in REITs?
« Reply #29 on: November 14, 2016, 03:51:20 PM »
I like to have a small position, but for most people home ownership already represents an over sized portion of their financial net worth without adding more real estate by buying into REITs.

Vagabond76

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Re: Anyone invest in REITs?
« Reply #30 on: November 14, 2016, 07:01:47 PM »
Vagabond76 - Wow, that's dedication in sticking it to the IRS.  "You can pry my cost basis from my dead body" kinda approach. 
Fuck the IRS.
That's like saying "fuck cops" because your city passed a law you don't like. The IRS just enforces policies enacted by Congress.

Now you're talking my language!

zephyr911

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Re: Anyone invest in REITs?
« Reply #31 on: November 18, 2016, 10:52:26 AM »
Derpity derp! >.<

Reido

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Re: Anyone invest in REITs?
« Reply #32 on: November 18, 2016, 07:53:51 PM »
I used to invest in REITs...  I owned WPC, OHI, O, HST, DEA, UBA...  I loved the stability and the fact that those usually did well even in recessions. The prices got so high and the yields so low, however that I decided to sell and pursue private equity real estate.  Places like fundrise, realtyshares, realtymogul, and crowdstreet.

You can get about an 8% yield on cash with decent assets if you're careful.  There's a lot of details to it, however, that can hose you if you don't know what you're doing.  I go primarily with multifamily units, since they're fairly recession proof and I try to make sure the sponsors are taking out long term loans and and investing long-term. Short term flips can come back to bite you very easily IMO.

Scandium

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Re: Anyone invest in REITs?
« Reply #33 on: November 23, 2016, 09:37:38 AM »

I like how REITs, at the same time, offer a protection against inflation (as opposed to bonds) and produce a consistent income (as opposed to stocks and gold

They do? From what I've seen REITs seem to follow stocks pretty well, even in recessions. But hard to tell since Vanguard's REIT fund only goes back to 1996. Portfolio visualizer show that REITs have 0.6 correlation with the US market, with most of the outperformance appear to be from a smaller drop in the dot-com crash, which makes a certain amount of sense. While the REIT crash in 2008 was quite brutal.

I own some REITs myself, and though it might help some I'm not sold on the diversification being that great.

https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=2&startYear=1972&endYear=2015&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&rebalanceType=1&portfolio1=Custom&portfolio2=Custom&portfolio3=Custom&TotalStockMarket1=100&REIT2=100

Mother Fussbudget

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Re: Anyone invest in REITs?
« Reply #34 on: November 23, 2016, 12:22:47 PM »
I do some REIT investing in my IRA & Roth IRA accounts (to defer/minimize dividend tax impact). 
Posting to follow & follow-up this weekend...