Mortage vs REIT

[cloudo]

Hello mustachians, I am currently invested in a four fund portfolio of roughly 25% U.S. stocks, 25% International stocks, 25% bonds, and 25% REITs.  I am considering buying a house and will need to sell some of my funds for the down payment.  I was wondering whether the house should replace the REITs as my real estate investment and I should sell my entire REIT position for the downpayment, or whether I should maintain my current allocation and sell from all 4 funds evenly.

[Interest Compound]

I think your rationale for getting rid of the REITS is sound. However, I think REITS are a silly investment, and the portfolio you'd be left with looks perfect:

33.3% U.S. stocks, 33.3% International stocks, 33.3% bonds

So I may be a bit-biased :-P

[cloudo]

Thanks, I think I will ditch the REITs, especially after rereading Jim Collins article. http://jlcollinsnh.com/2014/05/27/stocks-part-xxii-stepping-away-from-reits/

[thd7t]

I don't really think that you need REITs (although I have 0.02% of my stache in them), but I also don't think that buying a house to live in is a replacement for investments.  It's a house to live in.  If you were buying real estate to rent out, it would be a different story.

[tomsang]

How much do you need?  Is there a way that you could take out a 401k loan for the amont? 

[MustacheAndaHalf]

I don't really think that you need REITs (although I have 0.02% of my stache in them),

Vanguard Total Stock Market holds over 3% in REITs, and the S&P 500 over 2%.

[jjandjab]

I would suggest not considering your primary house as a substitute for a REIT. It is your place of dwelling and is rarely a good investment and it doesn't throw off cash dividends like a REIT. Sure you could say a condo in SF or Seattle the last few years has shown a good paper return, but you need to be willing to move to somewhere else and disrupt your life to actually harvest the gain. Other folks houses have lost value or stayed the same. I calculate my home value minus mortgage in my net worth, but not as part of my overall investment allocation.

In terms of what you decide to sell, you just need to reassess where you stand with your investment allocation. If you don't like REITs anymore based on research, then sell those. But if you still think they can be a good investment, then keep them.

I personally am a fan of, and investor in, healthcare REITs since I like that business model. I do not fully agree with the Collins article. I have had very good success with my REITs and although others might disagree, I use them as a hybrid between stocks and bonds.

[CoffeeR]

Thanks, I think I will ditch the REITs, especially after rereading Jim Collins article. http://jlcollinsnh.com/2014/05/27/stocks-part-xxii-stepping-away-from-reits/

I stepped away from REIT's. I have no separate and specific REIT allocation. You what this means... right? It means REIT's will outperform over the next couple of years.

[privatefarmer]

REITs are an investment. They are a form of business that PAY you via collecting rent from tenants and passing on the proceeds to shareholders.

A house is a thing, a consumer good. It is NOT an investment. thinking that it will grow, in REAL dollars, is a speculative bet. It does not pay you anything (you can turn it into an investment by renting out a room, however). It does save you in paying rent, so in that sense one could argue it is "sort of" an investment since you don't have to pay rent. But a house is a consumer good, it COSTS you money and MAY keep up with inflation over time but only if you continuously put money into upkeep.

So, no, a house is not a replacement for a REIT. My bigger question is 1) why do you feel the need to tilt towards REITs and 2) if you are just now buying a house I assume you are young, why do you hold bonds?