3-4 years from FIRE, need some real estate exposure (?)

[Monkey Uncle]

Perhaps this thread should have gone in the investing sub-forum, but I figured I'd start with the folks who know real estate best.

I'm currently projecting that I'm 3-4 years from FIRE.  Currently my portfolio is about 75/25 stocks/bonds, with a good diversity of large cap, small cap, international, and corporate/government bond exposure.  Real estate exposure is zero, except for home equity.  To round out my diversification, I'm thinking I may need some real estate exposure.

In hindsight, I probably should have started building a rental real estate empire 15 years ago.  But, DW and I have always been a little scared of the landlord thing, so we did not go that route.  If we were to overcome that fear (through use of a PM, for example), would it be worthwhile to start now?  My impression is that rental real estate doesn't offer a competitive ROI unless you are leveraged in the 2:1 - 4:1 range.  I'm thinking it may not be wise to carry half a dozen 20 or 30 year mortgages into FIRE at my age (46).  There are some low-cost houses around here that I could purchase for cash, but it looks like it might be a struggle to get monthly rents much above 1% of all-in cost on single family units.  Again, without leverage, this looks like an underperforming investment.

I have not looked into the possibility of being a passive investor in someone else's real estate empire.  Have any of you done this?  Does it work basically like making a peer-to-peer loan?  If so, is the yield worthwhile?  Or do you get a percentage of revenue?

What about master limited partnerships?  Has anyone invested in one?  What sort of return are you getting, and how risky is it?

Investing in equity REITs would be the easy way to go.  My (admittedly limited) impression is that long-term returns have not been super-competitive with stocks.  And looking at share price charts from the 2008 meltdown makes me a little queasy.

So, I guess I'm a little reluctant to take the RE plunge, but it seems my diversification is lacking without any RE.  What would you do in my shoes?

[NoNonsenseLandlord]

I have looked into a few limited partnerships, including several by Dave Lindahl.  Most project 10%+ returns, I am not sure the actual.  I never pulled the trigger.

If you want the highest returns, you need to own and manage them yourself.  Unfortunately, that is also the most risky.

[Clean Shaven]

Following this with interest, as I'm in the same situation as you, and have had the same questions about real estate investing over the years.

[Monkey Uncle]

Investing in equity REITs would be the easy way to go.  My (admittedly limited) impression is that long-term returns have not been super-competitive with stocks.  And looking at share price charts from the 2008 meltdown makes me a little queasy.

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

Looks like I should have done my homework on equity REITs a little more thoroughly.  Returns from 1991 through 2014 appear to compare favorably with stocks.

Has anyone seen longer term data?  I'm still a little skeptical, given that the time window covered by this data set includes the big bubble in the 2000's.

[forummm]

REITS are similar to other equities over the long term. REITS tend to be less correlated with traditional stocks, so they are a way of reducing volatility as part of a balanced portfolio. REITS make up something around 5% of VTSAX already.

[Clean Shaven]

REITS make up something around 5% of VTSAX already.

I didn't know that - thanks. 

Earlier this year, thinking that I should have some $ in real estate, I bought $10K of Vanguard's REIT fund (VGSNX) through my HSA.  Not sure I'm going to keep contributing to that fund, though, because:
1) If I consider my own house's equity as part of my overall AA, I have a lot of exposure to the real estate sector there already, and
2) If VTSAX includes REITs also, I'm already covered there -- via VTSAX and other target date funds in retirement plans.

I'm still investigating purchasing real estate for rental income, but am just starting out on that front.  Lots of pros and cons to being a landlord, IMHO.