REIT Nation - Taxable? (List inside)

[flyersman]

So I have been building out my Taxable Portfolio for the last few months and incrementally buying Fidelity Total Market (FSTVX). My IRA is full of Bonds (FSTIX) and my 401K is full of Total Market and Bonds. The only  area I can add $$$ to would be taxable with Fidelity.

I have considered keeping putting money into FSTVX but have really wanted to get exposure to real estate. My wife wanted to buy some more property in Houston to rent out but I think I can get better returns from buying into REITS.

Are REITS a NO NO to put in a taxable account? I am in the 33% Tax Bracket so I potentially could take a big hit. Thinking of about 5-10% of portfolio in Real estate

It seems like I could buy into Funds at Fidelity including one Index.

Fidelity Real Estate Index Fund - Premium Class (FSTVX)
https://fundresearch.fidelity.com/mutual-funds/summary/316146240

FidelityŽ Real Estate Income Fund (FRIFX)
https://fundresearch.fidelity.com/mutual-funds/summary/316389865

FidelityŽ Real Estate Investment Portfolio (FRESX)
https://fundresearch.fidelity.com/mutual-funds/summary/316138205

Furthermore I read an awesome post on Reddit copied below that really laid out other types of REIT Funds on the market. Any comments on the ones below

1. Equity Residential (EQR), although I think we are closer to the top of the cycle in terms of apartments. Sam Zell sold off 23,000 apartments in this REIT and - earlier this year - paid a special dividend. If you have a long-term view, this is a well-run REIT focused on apartments in space constrained major cities. However, I'd really wait for a significant pullback.

2. Vornado (VNO). One of the oldest REITs and quite well-run, owning a hefty amount of DC and NYC real estate. The issue, however, is that while they own a ton of extremely high quality NYC real-estate, the company is certainly not diversified. I do think Vornado is overvalued at the moment and getting it in the mid $80's would be more appealing.

3. Tanger Outlets (SKT) I fucking hate the mall, but I do think that the "high end outlet" concept has a lot of appeal to people seeking value. Tanger is the only "pure play" on this.

4. QTS (QTS), Coresite (COR), Equinix (EQIX), Digital Realty (DLR) and others. The Data Center REITs - in my opinion - are the most appealing REIT sub-sector, as I think they are absolutely a long-term growth story. That said, they've run up a good deal, too. Equinix 5.  (EQIX) went from a bit over $300 to $260 in February, then proceeded to ramp to $330. Coresite (COR) and QTS (QTS) also ramped significantly after the decline earlier this year.

5. Realty Income (O). Consistent, predictable triple net REIT that has paid dividends monthly for many years. I think it's run up much too much lately and would be more appealing if it got back to the mid-50's.

6. Ventas (VTR): High quality, well-managed healthcare REIT.

7. American Tower (AMT), Crown Castle (CCI). The cell tower REITs. I'd rather the data centers, but this pair (CCI being us-centric, AMT being global) are worth consideration.

8. Prologis (PLD). Terrible 2008, but the company has rebounded. Amazon being a large customer. They have benefited from e-commerce.

9. Retail Opportunity (ROIC). Again, I don't care for the mall, but this is a smaller, well-run REIT focusing on malls with need-based anchor stores.

10. EPR (EPR) Entertainment focused REIT. Not something you would own if you think that moviegoing in the future is people sitting at home with VR helmets or if you think moviegoing in general is gradual decline either way. They do own schools, entertainment venues (waterparks, indoor golf and other recreation centers) but a lot of movie theaters. Not for me, but has been well-run over time and pays a monthly dividend. If you are positive on moviegoing going forward as well as discretionary dollars going towards new kinds of recreation/entertainment places, I'd much rather point someone to this than owning one of the theater chains. No, this is not all theaters, but if you are positive on moviegoing, you are likely positive on recreation/entertainment dollars and while not a moviegoing "pure play" and not for me, terrific dividend here, paid monthly.

11. SL Green (SLG, volatile) and Boston Properties (BXP, wait for pullback) are a couple of others that come to mind. Equity Lifestyle (ELS) is another, which owns a lot of property on or near waterfront. ELS would definitely be more appealing after a meaningful pullback.

[Aphalite]

In terms of asset placement, REITS should definitely go into tax advantaged, sell some VTSAX/VTI and buy it in your taxable to make room

For funds, O is the slightly overpriced blue chip that you can't go wrong with (I've stayed away because it always looks expensive to me), VNQ would be good if you're just dipping a toe into the water - hugely diversified, low expenses, etc.. QTS/COR/EQIX/DLR are all great but they also look overvalued to me, and I think companies are starting to build out their own (FB opening a location in Ft. Worth, for example). Currently I hold OHI (2% of my portfolio) - prefer it to VTR, and it still looks cheap to me - the risks are regulatory in nature, so hard to predict/forecast

[Frankies Girl]

I currently hold a decent chunk of the Fidelity REIT index - Fidelity Real Estate Index Fund - Premium Class (FSTVX) in my portfolio, but it is in an IRA. Last I looked, it has doubled my initial investment in just over 2 years... not bad at all. I personally have zero interest in investing in actual real estate (the idea of being a landlord... oh hell no), so this was my answer to diversifying a bit more. It has been interesting to watch what it does as it doesn't track along exactly with what the general market does (good primer for how real estate is a different animal altogether for me).

I personally would not hold that type of fund in a taxable account because it throws off so many taxable events, and I'm in the 10% taxable bracket... so my opinion is also that I would not recommend putting it (or other high turnover/high taxable event funds) into a taxable account.

I use the Bogleheads wiki:
https://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement

[seattlecyclone]

The reason you generally should avoid putting REITs in taxable accounts is that they tend to have fairly high dividend payments, and these dividends generally do not get the favorable "qualified dividends" tax treatment. Expect to pay tax at your regular marginal rate on these payments if you put them in your taxable account. This issue goes away when you put the REIT in a retirement account: the REIT dividends are taxed the same in there as any other type of investment growth.

[flyersman]

Thanks for replies. I guess the only place I could get exposure is to sell my FSTVX in my IRA (16-17k) and buy REITS there. Then buy bonds in taxable. I would have same issue then as bonds are not tax efficient

[Aphalite]

Thanks for replies. I guess the only place I could get exposure is to sell my FSTVX in my IRA (16-17k) and buy REITS there. Then buy bonds in taxable. I would have same issue then as bonds are not tax efficient

Any opportunity for you to roll 401k?

[flyersman]

Thanks for replies. I guess the only place I could get exposure is to sell my FSTVX in my IRA (16-17k) and buy REITS there. Then buy bonds in taxable. I would have same issue then as bonds are not tax efficient

Any opportunity for you to roll 401k?

I cant roll my 401K from my company elsewhere. (With Merrill). Choises in there are horrible (high ER) so majority of funds ($250K) is broken down between BSPIX which tracks S&P (Low ER) and PTTRX (Pimco Total Return). About $250K there with $40K in PTTRX and $210 BSPIX

[Aphalite]

I cant roll my 401K from my company elsewhere. (With Merrill). Choises in there are horrible (high ER) so majority of funds ($250K) is broken down between BSPIX which tracks S&P (Low ER) and PTTRX (Pimco Total Return). About $250K there with $40K in PTTRX and $210 BSPIX

I'd say keep your bond/REIT allocation to the balance of your IRA (and whatever your wife has in her IRA) - total market in the rest

Alternatively, increase your PIMCO holding in your 401k to account for your bond allocation, and use your IRA to fund your desired REIT allocation

[DavidAnnArbor]

If you put your REITs in taxable, you'll have to wait longer to get your 1099 dividend statement later than you would normally expect. The 1099-DIV for a REIT might not be available until mid-February and possibly later.

[flyersman]

So i found this in my 401K

Worth moving a few thousand towards that?


Neuberger Berman Real Estate Trust  NBRFX
E/R - 1.39%
http://www.morningstar.com/funds/XNAS/NBRFX/quote.html

[DavidAnnArbor]

A 1.39% expense ratio is unacceptable.

[seattlecyclone]

Yes, better to allocate things in a tax-inefficient manner than pay fees that high.