Author Topic: REITs  (Read 4505 times)

schoenbauer

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REITs
« on: February 19, 2014, 10:24:45 AM »
Dear helpful forum,

I have a couple of understanding problems regarding REITs and I would be very thankful if someone educated could help me out:

1. Companies which run a REIT are often stock companies. So I get exposure to the rental market by just owning a broad index fund (msci world or so), is that correct?

2. If yes, why should I buy REITs, if I already own parts of the company(ies)?

3. Do REITs make their money by renting real estate to others or by buying/selling real estate (or possibly both)?

Thanks!

PS, whatīs a typical TER for a REIT-ETF?

tooqk4u22

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Re: REITs
« Reply #1 on: February 19, 2014, 12:36:31 PM »
Dear helpful forum,

I have a couple of understanding problems regarding REITs and I would be very thankful if someone educated could help me out:

1. Companies which run a REIT are often stock companies. So I get exposure to the rental market by just owning a broad index fund (msci world or so), is that correct?

2. If yes, why should I buy REITs, if I already own parts of the company(ies)?

3. Do REITs make their money by renting real estate to others or by buying/selling real estate (or possibly both)?

Thanks!

PS, whatīs a typical TER for a REIT-ETF?

1.  Yes.
2.  To increase your exposure to that sector (REITS are very small piece of the overall market) - dividend income and inflation hedge are common reasons.
3.  Primarily by renting properties, but they do buy/sell as part of their business to reposition capital.

Expense ratios vary from low to high like other ETFs/Funds.


daverobev

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Re: REITs
« Reply #2 on: February 19, 2014, 01:03:49 PM »
There are different kinds of REITs, as well. The most normal is one that, simply, owns properties and rents them out. There are also mortgage-backed ones (they buy mortgages, and make their money on the spread between short term lending and long term borrowing costs).

I have ZRE in Canada which is 'equal weight' and has a MER of.. hmm, 0.55%. VNQ in the US is a great 0.1%.

soccerluvof4

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Re: REITs
« Reply #3 on: February 20, 2014, 12:19:03 PM »
VGSLX is how i play Reits which make up 25% of my portfolio currently.

schoenbauer

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Re: REITs
« Reply #4 on: February 20, 2014, 01:35:33 PM »
ah okay, thanks for the explanations.

is there scientific proof, that a protfolio with a higher exposure to the rental market than a normal broad stock index fund performs better than an ordinary stock etf? if so, could u please quote a source?

otherwise i dont see any reason to own reits other than for diversification?!?!

arebelspy

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Re: REITs
« Reply #5 on: February 20, 2014, 02:41:16 PM »
otherwise i dont see any reason to own reits other than for diversification?!?!

That's it, basically, for the inflation hedge.
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MissPeach

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Re: REITs
« Reply #6 on: February 20, 2014, 05:36:45 PM »
It depends on the REIT. Not all of them will be house rentals per se. For example I own a certain stock (WY) that is classified as a REIT but they own housing, logging, and a few other industries. One of the REIT funds I was exploring on Vanguard has a large share of holding in storage companies like Public Storage.

Thegoblinchief

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Re: REITs
« Reply #7 on: February 21, 2014, 04:01:51 PM »
There are also healthcare focused ones. I know a few dividend guys they are big on one, I think the ticker symbol is just "O".

Mr Mark

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Re: REITs
« Reply #8 on: February 21, 2014, 08:10:11 PM »
To quote from wikipedia, there are also tax advantages as REITS  pay little federal corporate tax


From 2008 to 2011, REITs faced challenges from both a slowing United States economy and the late-2000s financial crisis, which depressed share values by 40 to 70 percent in some cases.[2]

Legislation

Under U.S. Federal income tax law, a REIT is "any corporation, trust or association that acts as an investment agent specializing in real estate and real estate mortgages" under Internal Revenue Codesection 856.[43] The rules for federal income taxation of REITs are found primarily in Part II (sections 856 through 859) of Subchapter M of Chapter 1 of the Internal Revenue Code. Because a REIT is entitled to deduct dividends paid to its owners (commonly referred to as shareholders), a REIT may avoid incurring all or part of its liabilities for U.S. federal income tax. To qualify as a REIT, an organization makes an "election" to do so by filing a Form 1120-REIT with the Internal Revenue Service, and by meeting certain other requirements. The purpose of this designation is to reduce or eliminate corporate tax, thus avoiding double taxation of owner income. In return, REITs are required to distribute at least 90% of their taxable income into the hands of investors. A REIT is a company that owns, and in most cases, operates income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and even timberlands. Some REITs also engage in financing real estate. The REIT structure was designed to provide a real estate investment structure similar to the structuremutual funds provide for investment in stocks.[1]




foobar

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Re: REITs
« Reply #9 on: February 21, 2014, 09:09:01 PM »
This isn't the rental market but the whole reit market.

http://www.havermannfinancial.com/hf_newsletter/reits-may-offer-an-advantage-for-investors/

Note the S&P 500 results would be a lot better if they redid the numbers using 2014 numbers instead of 2013.

REITs and stocks both perform about the same. You own both because they are not 100% correlated. Sure 2008 was rough on both but look at 2000-2002 for how the last bear market went.


ah okay, thanks for the explanations.

is there scientific proof, that a protfolio with a higher exposure to the rental market than a normal broad stock index fund performs better than an ordinary stock etf? if so, could u please quote a source?

otherwise i dont see any reason to own reits other than for diversification?!?!

wtjbatman

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Re: REITs
« Reply #10 on: February 22, 2014, 07:50:43 AM »
REITs can (not always) be popular with dividend and income investors. I generally follow a dividend growth strategy and I have one REIT in my portfolio thanks to a recent investment, Realty Income Corp (O).