Author Topic: Physical property vs REIT  (Read 5011 times)

WageSlave

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Physical property vs REIT
« on: March 21, 2013, 04:16:18 PM »
Any thoughts or considerations for real estate investments: REIT versus physical property?

An obvious difference: REIT is kind of "set it and forget it":  Buy the stock (or fund), get dividends.  Conversely, buying and selling physical property is significantly more involved than making a few clicks in the brokerage account.  Management and maintenance can be additional work, depending on how much you outsource.

My understanding is that most REITs deal in commercial properties like office space and big high rises.  For me personally, I would be looking at SFHs or duplexes.  In that sense, seems like physical ownership could add some asset diversity.  However, with an REIT, or, more specifically in my case, and REIT fund (VGSLX) you get more geographic diversity.  (At least until I have a big enough stache to buy physical properties all over the country!)

FWIW, I've mentioned around here that I am currently an "accidental landlord": I bought a house in a my home town, but then moved to another city to join a semi-risky startup.  So I turned my house into a rental.  Based on the numbers I've seen people around here post, my returns on this rental are mediocre at best (but they are positive!).

Is it a reasonable assumption that rents and property values should keep pace with inflation, at least over the long haul?

My goal in real estate investing is (1) hedge against inflation, and (2) further investment portfolio diversification.  With regards to (1), if I buy more physical property, I will do so on loan.

And speaking of loans: does it say anything about the "character" of physical real estate investing that taking out a loan for physical property doesn't raise any eyebrows, whereas buying a bunch of stock (even REIT stock) on margin has a "super risky" stigma associated with it?

For those of you who purchase rental properties outside your hometown: I assume you take the time to actually visit them?  Some kind of on-site inspection?  Or do you have a trustworthy agent to do all the on-site legwork for you?  I ask because my gut instinct is to buy properties in my home town.  But based on the light data-skimming I've done, there are better opportunities to be had elsewhere.  But I'm not at a point where I can afford the time to do long-distance travel for checking out potential deals.

The guy who manages my current rental just sent me a listing for a house that went on the market that he thinks would be probably be a good rental property (I asked him to send me any listings he came across).  I haven't had a chance to see it in person, but based on the listing, it's fairly similar to my current property and I would expect similar rents, around 0.7% to 0.8% monthly rent as a percentage of purchase price.  I've read you should shoot for 2%, but I just don't see that happening in my area.

Joet

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Re: Physical property vs REIT
« Reply #1 on: April 29, 2013, 01:09:48 AM »
my amateur reading of REIT's vs Landlording[owning rental property] is that the overlap is minimal at best. Completely different factors affecting the commercial markets vs the residential.

That being said I believe there is room for REITs in everyones portfolio. Having an income property or two probably isnt a terrible idea if you can manage one that isn't too much of a headache and offers some kind of ROI say approximating equity market returns.

And as you say, a good diversifier to other assets.

arebelspy

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Re: Physical property vs REIT
« Reply #2 on: April 29, 2013, 07:59:13 AM »
my amateur reading of REIT's vs Landlording[owning rental property] is that the overlap is minimal at best. Completely different factors affecting the commercial markets vs the residential.

Not all REITs are commercial.  There are residential REITs.
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Re: Physical property vs REIT
« Reply #3 on: May 20, 2013, 07:06:42 AM »
FWIW, our commercial REIT has returned very good yields. They provide just the geographical diversification you mention, plus Dividend Reinvestment (DRIP) option. If you're not into landlording, they appear to be a good way to provide real estate as part of your asset allocation.