Are REITs needed for me?

[MgoSam]

Here is my situation, I have about 192k invested in Vanguard, I have low expenses and am relatively young, 25 years old. I want to keep my money invested for a long time, at least ten years. I'm wondering if Vanguard's REIT or another REIT is worth investing in?

Right now I have about 70% in Vanguard Total, about 15 in both International and Total Bond.

[Khan]

REIT's are a decent diversification point to have, so yes, can't really argue against having them. However, according to tax efficient planning(http://www.bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement) they are most efficient when in untaxed accounts(ROTH, IRA)

[COguy]

I think REITs can be a good diversifier, but right now they look pretty overvalued due to investors reaching for yield.  William Bernstein talks about that here:

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=115965

Personally, I would keep REITs if I have had them for the past couple years or longer and keep re-balancing.  But, right now is hard to make the case for adding them, unless you know you will stick with them for 20+ years...

Of course, I have no idea what the future will hold.  I would say right now if you want to add them you should write an Investment Policy Statement first so that you can stick to your allocation.  Otherwise, you could easily lose any benefit REITs could provide.

http://www.bogleheads.org/wiki/Investment_Policy_Statement

Your three fund portfolio will work great and is really simple to manage, so I wouldn't over think it.

[smedleyb]

I found this story fascinating:

The group that controls the Empire State Building has secured the shareholder votes that it needs to go ahead with a $1bn public stock offering.
After more than a year of bitter wrangling between Malkin Holdings, which controls the New York skyscraper, and a cluster of dissident investors, more than 80 per cent of building’s 3,300 ownership units have finally approved a plan to create a real estate investment trust, according to a regulatory filing on Wednesday.

http://www.ft.com/cms/s/0/7a3ccb26-c86e-11e2-acc6-00144feab7de.html#axzz2VMFKFeeh

A REIT consisting of one building?  Makes me think the REIT game is in the late innings (bargains already snatched up, upward interest rate pressures, one-building REITs, etc.)

[COguy]

ooh...I want to own part of the Empire State Building....or not

OP, you might find this analysis useful as well:  http://www.longtermreturns.com/2012/12/reit-valuations.html

Basically, don't sell you REITs.  But, think long and hard before adding them right now.

[mpbaker22]

As of yesterday, more than the required 80 percent supermajority of Empire State Building Associates LLC holders have approved the consolidation of the building and 20 other properties into a real estate investment trust, Malkin Holdings LLC, which controls the tower, said in a regulatory filing today. Voting for the plan remains open, said Hugh Burns, a spokesman for Malkin Holdings with Sard Verbinnen & Co.

[footenote]

I think REITs can be a good diversifier, but right now they look pretty overvalued due to investors reaching for yield.  William Bernstein talks about that here:

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=115965

Personally, I would keep REITs if I have had them for the past couple years or longer and keep re-balancing.  But, right now is hard to make the case for adding them, unless you know you will stick with them for 20+ years...

Of course, I have no idea what the future will hold.  I would say right now if you want to add them you should write an Investment Policy Statement first so that you can stick to your allocation.  Otherwise, you could easily lose any benefit REITs could provide.

http://www.bogleheads.org/wiki/Investment_Policy_Statement

Your three fund portfolio will work great and is really simple to manage, so I wouldn't over think it.

I'm with COguy. We have gotten great returns on our REIT holdings over the past nine years (and continually bought non-REIT investments with the dividends), but I agree that yield-seekers have oversubscribed REITs in general. I would not buy into one at the moment.

[matchewed]

As of yesterday, more than the required 80 percent supermajority of Empire State Building Associates LLC holders have approved the consolidation of the building and 20 other properties into a real estate investment trust, Malkin Holdings LLC, which controls the tower, said in a regulatory filing today. Voting for the plan remains open, said Hugh Burns, a spokesman for Malkin Holdings with Sard Verbinnen & Co.

Shhh don't dilute the point with facts.

[smedleyb]

As of yesterday, more than the required 80 percent supermajority of Empire State Building Associates LLC holders have approved the consolidation of the building and 20 other properties into a real estate investment trust, Malkin Holdings LLC, which controls the tower, said in a regulatory filing today. Voting for the plan remains open, said Hugh Burns, a spokesman for Malkin Holdings with Sard Verbinnen & Co.

My bad.

[sdp]

what about adding a global reit with a large holding in commercial?  emerging markets and developed international have taken a beating as of late and their economies should begin to pick up pace and out of recession eventually, don't you think?

[sdp]

will REITs take a dive similar to bonds once the interest rate environment starts to tick upwards?  If a REIT is made up of mortgages with a low yield, and the interest rates increase, wouldn't that mortgage be worth less to investors than before? 

[arebelspy]

will REITs take a dive similar to bonds once the interest rate environment starts to tick upwards?  If a REIT is made up of mortgages with a low yield, and the interest rates increase, wouldn't that mortgage be worth less to investors than before?

Check out the differences between mortgage REITs and equity (property) REITs.

Yes to the former, not really so much to the latter.

[kyleaaa]

REITs are okay diversifiers but you don't NEED them. You definitely shouldn't own them outside of a tax-advantaged account.

Personally, I hold 10% of my portfolio in REITs.

[WetBandit]

What is everyone's take on Vanguards Domestic REIT fund at the moment....I have seen many previous posts that it may be best too wait as it is priced to high at the moment. I am considering adding a small position for my ROTH IRA.

[kyleaaa]

What is everyone's take on Vanguards Domestic REIT fund at the moment....I have seen many previous posts that it may be best too wait as it is priced to high at the moment. I am considering adding a small position for my ROTH IRA.

If you decide you  need to own REITs and are willing to hold it for the long term, you shouldn't try to time the market.

[footenote]

What is everyone's take on Vanguards Domestic REIT fund at the moment....I have seen many previous posts that it may be best too wait as it is priced to high at the moment. I am considering adding a small position for my ROTH IRA.

If you decide you  need to own REITs and are willing to hold it for the long term, you shouldn't try to time the market.

+1

[arebelspy]

Just make sure they're equity REITs and not mortgage REITs, or an index of REITs.  There's a big difference between the two.

[irastache]

REITs are very hard to value compared to stocks. It is hard to know if a REIT is expensive or cheap. As many have said, be sure you know what kind of property your REIT holds and if it is "leveraged". If you don't know how to figure if it is a leveraged REIT, you must google this before you buy.

Here is a post on current valuations (in this post, VNQ and similar are found to be very expensive compared to stocks): http://www.longtermreturns.com/2012/12/reit-valuations.html

[NYD3030]

The thing I struggle with is that reading all this stuff about REIT overvaluation makes me think... well, I should sell my small position in REITs.  But that's market timing.  But everyone agrees that, compared to other places I could put my money, they are overvalued...

... This goes around and around in my head.  What I need to keep in mind is that REITs are 6% of my portfolio so regardless of which direction the market for them goes, the bulk of my money is in vanguard stock index funds.  And in that investment I have great confidence!

[WetBandit]

NYD, I agree with you. I am not in a REIT fund right now, but I am looking to get in one (Vanguards Fund). Everything I see is saying they are overvalued, so I am waiting to jump in. However, if I were in I would be in the same dilemma as you ... do I sell, etc. I know that it is not good to do that, but human nature I suppose.