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REIT Advice
Old 11-13-2013, 01:16 PM   #1
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REIT Advice

In my frenzy of trying to diversify my investing strategy, one of my local banks invited me to participate in a REIT. They claim they have been noticing 3-5yr gains in the 10-20% range which enticed me enough to have them send me more info on this so-called REIT.

Bascially they acquired 121 corner stores across 21 states for $700million like CVS, PetSmart, Trader Joes, Buffalo Wild Wings, Walgreens to name a few.

There is a minimum investment of $2500 and some income/savings requirements that also made me feel "special" lol.

They are offering this to me at $10.00/share.

What do you think? Is it worth dumping $5,000 into for a 3-5year investment?
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Old 11-13-2013, 01:41 PM   #2
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In my frenzy of trying to diversify my investing strategy, one of my local banks invited me to participate in a REIT. <>
What do you think? Is it worth dumping $5,000 into for a 3-5year investment?
This REIT may be second only to Carter's Little Liver Pills; but I doubt it. Three general comments: A frenzy is usually not a good frame of mind for investing, non-listed REITs usually suck, and when you are talking small investments like this, just pick some very large, very cheap, very broad index fund and get it over with.

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Old 11-13-2013, 01:50 PM   #3
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This REIT may be second only to Carter's Little Liver Pills; but I doubt it. Three general comments: A frenzy is usually not a good frame of mind for investing, non-listed REITs usually suck, and when you are talking small investments like this, just pick some very large, very cheap, very broad index fund and get it over with.

Ha

LOL. Experimenting is soo fun and I like teaching myself lessons the hard way.

Yeah I figured it was kind of a hoax, if anything else maybe I can steer others away from it...

Hurrying up and waiting has never been easy for me.
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REIT advice
Old 11-13-2013, 03:02 PM   #4
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REIT advice

I have learned investing via the hard way. Any bank which offers investments have hidden expensive fees. If you want add to Reit's to your portfolio, use a Schwab, Vanguard or Fidelty, not a bank. Schwab, Vanguard and Fidelty all offer index fund Reit's at low expenses. I use Schwab and they offer their own Reit index fund or Cohen & Steers.

Reit's are a good alternative currently to bond funds.

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Old 11-13-2013, 03:09 PM   #5
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I add 5% domestic REITs in my AA. It's all VNQ, which has probably increased 300% over the last five years (which pretty much starts at the market bottom). Almost anything will look good over that period, and investments that really crashed and then really recovered (like VNQ for that matter) will look even better if you just look at the last five years. I'd stick with the mainstream investments.
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Old 11-13-2013, 03:37 PM   #6
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....$2500 and some income/savings requirements that also made me feel "special" lol.
...
One time I had to fill out forms for an investment that had "special" requirement of the investee. Now when I want to feel special, I can take out the worthless stock certificates and look at them.

LOL
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Old 11-13-2013, 04:01 PM   #7
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Banks are in business to make money.

If it is a non traded REIT you are out of your mind!

REITs are very tax inefficient so don't hold it in a taxable account!

If you want REIT exposure try the Vanguard fund. But beware, I think that REITs don't do well in a rising rate environment. As the 10 yr Treasury note coupon increases I see the Vg REIT fund nav drop and as the rate drops I see the nav increase. REITs have done very well over the past few years and may be at a high nav today.

I hold the Vg REIT fund in my Roth IRA as a diversifer but I'm concerned I'm going to give back all the cap appreciation over the past 2 years. It's a small amount so rebalancing would really lower my AA to even less than it is ( ~ 2.7%) and I'd like it to be 2x - about 5-6% of the total portfolio but I'm hesitant to add money now.
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Old 11-13-2013, 05:31 PM   #8
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I almost forgot...banks are in the business to make money...especially the smaller ones.
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Old 11-13-2013, 05:33 PM   #9
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Again, good solid advice. I will just keep watching the 401k and let the pro's manage the funds.
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Old 11-13-2013, 05:51 PM   #10
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Just one thing you should search under : non traded reit lawyer.

You will find out they are plentiful and for good reason. Look at the posts of actions taken.

Finally beware these reits often are said to be paying dividends when they are actually paying back principal.

Also read on the FINRA site their warnings.

When done with this , run , run, and then hide.
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Old 11-13-2013, 11:55 PM   #11
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In my frenzy of trying to diversify my investing strategy, one of my local banks invited me to participate in a REIT. They claim they have been noticing 3-5yr gains in the 10-20% range which enticed me enough to have them send me more info on this so-called REIT.

Bascially they acquired 121 corner stores across 21 states for $700million like CVS, PetSmart, Trader Joes, Buffalo Wild Wings, Walgreens to name a few.

There is a minimum investment of $2500 and some income/savings requirements that also made me feel "special" lol.

They are offering this to me at $10.00/share.

What do you think? Is it worth dumping $5,000 into for a 3-5year investment?
veremchuka is spot on! Bank employees are NOT fiduciaries and therefore they should NEVER EVER be relied upon for ANY type of investing advice or advice on selecting investments. Bank employees do NOT legally work for you! They make HUGE sales commissions when they sell these REITS. That's WHY they are pushing them on you!

A bank is where you go to deposit money -- not to invest!

Never touch a non-traded REIT with a 10 foot pole! And that IS indeed a NON-traded REIT that they are trying to sell you.

What they aren't telling you is that you are taking on great risk with a non-traded REIT. As just one example, with Behringer Harvard REIT I, investors saw their final share values drop a whopping 53%.

Also what the bank salesman isn't telling you is that non-traded REITS underperform publicly traded REITS. In 2012 Blue Vault Partners LLC and The University of Texas at Austin McCombs School of Business conducted a study and determined that 71% of non-traded REIT's under performed their benchmarks.

Buy index funds like the S&P 500 index ( VOO ) like everyone else in this forum is saying to do. If you are so in love with real estate then it still should only make up a very small fraction of a portfolio. Maybe 3% tops. I own zero, although I certainly have real estate exposure in some of my ETF's.
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Old 11-14-2013, 02:30 PM   #12
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Originally Posted by kgtest View Post
In my frenzy of trying to diversify my investing strategy, one of my local banks invited me to participate in a REIT. They claim they have been noticing 3-5yr gains in the 10-20% range which enticed me enough to have them send me more info on this so-called REIT.

Bascially they acquired 121 corner stores across 21 states for $700million like CVS, PetSmart, Trader Joes, Buffalo Wild Wings, Walgreens to name a few.

There is a minimum investment of $2500 and some income/savings requirements that also made me feel "special" lol.

They are offering this to me at $10.00/share.

What do you think? Is it worth dumping $5,000 into for a 3-5year investment?
I'm a little more open-minded on this.

1.) Ask for a prospectus and/or an annual report. What are the expense ratios? And does the person running this fund know what they are doing?

2.) I hate to say it, but this may not actually "diversify" you. If you own a home, your home's value is going to be correlated with local real estate prices, and your portfolio is MASSIVELY, MASSIVELY correlated with local real estate. (OTOH, if you rent, this may help improve your portfolio.)

3.) Finally, how do you get out and/or paid for this portfolio? The bank is selling you shares in a local REIT, but how do you sell them when you need to get out of this position? It's not like these things are traded on the NYSE. And sometimes, when you really need the money, these things get even harder to sell. At the very least, don't count on being able to sell these REIT shares for anything if there's a recession.

4.) Is there a sales charge? If you invest $10K, what goes into the fund? It probably won't be $10K- it will probably be more like $9900. If it's $9500, that's too expensive and you should stop talking to them. You can buy shares of EQR, AVB, or some other national REIT instead. If you invest $10K in Equity Residential at 1PM and decide you want out at 2PM, you can probably get out for 99.99% of what you paid for it if the price doesn't move. (OK OK there is some risk it will go down and some chance it will increase, but average case, you pay the bid/ask spread.)

5.) The $64K question here is expenses. What are you charged to invest? What is the management fee? How much does this fund cost to run? (And is it being run by an idiot?)

8 times out of 10, a local REIT is a bad idea for most investors. But I'm not going to categorically call it a terrible investment.
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Old 11-14-2013, 03:17 PM   #13
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8 times out of 10, a local REIT is a bad idea for most investors. But I'm not going to categorically call it a terrible investment.
So, after writing what you just wrote, you are not ready to call it a terrible investment. OK, I will call it a terrible investment. This doesn't mean that it is definitely impossible to come out OK, or even well. It just means, why bother? Like you said, 80% of these are awful. I would say that this one is very likely to fall in this class. If it weren't, some local accountants and lawyers would have bought most of the shares and sold what was left to their clients/friends.

Best to fish where the salmon are, not where the dogfish are found. Unless of course OP is just looking for something to occupy his mind and use up some time that he has not yet learned to use up telling others what to do on ER.org.

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Old 11-14-2013, 03:17 PM   #14
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So, after writing what you just wrote, you are not ready to call it a terrible investment. OK, I will call it a terrible investment. This doesn't mean that it is definitely impossible to come out OK, or even well. It just means, why bother? Like you said, 80% of these are awful. I would say that this one is very likely to fall in this class. If it weren't, some local accountants and lawyers would have bought most of the shares and sold what was left to their clients/friends.
Here is where a local REIT may make some sense:

1.) You know the guy running it. He's an honest, responsible, shrewd person. Expenses are low.
2.) There's a liquid local market. Ideally, you're buying the shares second hand, and the shares are more liquid than houses.
3.) You rent. You may buy some day in 2-3 years, but not now. When you do, you can easily sell the shares. Buying this REIT gives you assets that help offset your consumption (of housing)
4.) Tomorrow, you can sell this back for at least 97% of what you paid for it.

Under those circumstances, after reviewing the prospectus, balance sheet, etc, I'd buy.

I do agree that whatever you do, never listen to a bank for investment recommendations.

Yes; lawyers and accountants are going to buy the shares if this is a well-run REIT. That may be a good signal. The local desk quant from an investment bank might buy it too. They will have a clear reason for buying this- they rent, or the portfolio is underpriced (unlikely). But when they buy houses, you still have a comparative advantage for owning these shares and it's worth more to you than it is to the quant. They will sell to you for less than what a perfectly knowledgeable and rational investor would be willing to pay for it under your circumstance. You don't own a house, they do, and this offsets your consumption risk.

If a fee-only financial planner suggested this to me; if he said there was a way to get all the sales charges back as 13b1 fees to cover my tax return for the year or cover financial planning for me- if I trusted the guy running it, I'd buy.

There's a place- a small place- for efficiently run, well-managed, local REITs, with liquidity that's not completely unreasonable. Generally in the portfolios of renters who are planning on staying in the area and perhaps buying a house one day. When you buy a house, get this thing the heck out of your portfolio.

Look, you rent. If this neighborhood gentrifies and gets more expensive, you're going to be forced to pay higher rents. It makes sense to have an asset that offsets that risk, and this fits the bill. This also captures this local risk that you face a lot better than a national REIT. That's not to say it's a great investment- the bank will *probably* screw you on expenses and sales charges, and the REIT *may* be run by an idiot or a spendthrift. If you can buy shares second-hand, you're probably going to get a better deal. But I wouldn't dismiss the idea just because a bank is pitching it to you- I'd just refuse to trust the bank for any sort of investment advice, make my own decision on it, and try to shop for a better deal from someone else who has shares. Just because timeshares are a horrible investment if you buy directly from the resort doesn't mean it never makes sense to buy one used.
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Old 11-14-2013, 03:52 PM   #15
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Here is where a local REIT may make some sense:

1.) You know the guy running it. He's an honest, responsible, shrewd person. Expenses are low.
2.) There's a liquid local market. Ideally, you're buying the shares second hand, and the shares are more liquid than houses.
3.) You rent. You may buy some day in 2-3 years, but not now. When you do, you can easily sell the shares. Buying this REIT gives you assets that help offset your consumption (of housing)
4.) Tomorrow, you can sell this back for at least 97% of what you paid for it.

Under those circumstances, after reviewing the prospectus, balance sheet, etc, I'd buy.

I do agree that whatever you do, never listen to a bank for investment recommendations.

Yes; lawyers and accountants are going to buy the shares if this is a well-run REIT. That may be a good signal. The local desk quant from an investment bank might buy it too. They will buy these things for clear reasons and hold them for a while. But when they buy houses, you still have a comparative advantage for owning these shares and it's worth more to you than it is to the quant. They will sell to you for less than what a perfectly knowledgeable and rational investor would be willing to pay for it under your circumstance. You don't own a house, they do, and this offsets your consumption risk.

If a fee-only financial planner suggested this to me; if he said there was a way to get all the sales charges back as 13b1 fees to cover my tax return for the year or cover financial planning for me- if I trusted the guy running it, I'd buy.

There's a place- a small place- for efficiently run, well-managed, local REITs, with liquidity that's not completely unreasonable. Generally in the portfolios of renters who are planning on staying in the area and perhaps buying a house one day. When you buy a house, get this thing the heck out of your portfolio.

Look, you rent. If this neighborhood gentrifies and gets more expensive, you're going to be forced to pay higher rents. It makes sense to have an asset that offsets that risk, and this fits the bill. This also captures this local risk that you face a lot better than a national REIT. That's not to say it's a great investment- the bank will *probably* screw you on expenses and sales charges, and the REIT *may* be run by an idiot or a spendthrift. If you can buy shares second-hand, you're probably going to get a better deal. But I wouldn't dismiss the idea just because a bank is pitching it to you- I'd just refuse to trust the bank for any sort of investment advice, make my own decision on it, and try to shop for a better deal from someone else who has shares.
That is very well stated, and before I bought my condo I wondered about maybe finding something like this. Still, even in this very narrow circumstance, it might well miss the mark. The investment amount must be big enough to accomplish this purpose. Since there will not be 10ks, etc, I would want my own CPA and real estate attorney to look at this offering-not the world's cheapest processes. Also, unless it is very well homed in on the exact neighborhood where you want to hedge your housing costs, it can easily fail. In gentrifying areas there can be huge price differences in rents and prices, within a block or two of one another. If the cops come along and chase the hookers and dealers a few blocks down, the area they leave can skyrocket and the area they go to fall.

I have posted about this issue in rent vs buy threads. IMO, there is usually no reason to buy, unless your area is undergoing rapid growth in well paid employment that is likely to attract job seekers from out of state and out of the US, AND the city or neighborhood is space and building constrained. Given these two conditions, IMO a renter who wants to stay long term should strongly consider becoming an owner. This will hedge better, and also be more liquid than the typical private REIT.

Thanks for your well reasoned argument.

Ha
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Old 11-14-2013, 04:23 PM   #16
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You know the guy running it. He's an honest, responsible, shrewd person.
I couldn't disagree more. Friends and people you think you know rip people off all the time!!! VERY common! Even if they're honest, they have no advantage over anyone else in the business world.
The bottom line is that if it's not a PUBLICLY traded investment (traded on the stock exchange) then there's no telling what kind of fraud or conflict of interest is going on and the SEC won't be monitoring your non-traded REIT investment like they do with publicly traded companies!
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Tomorrow, you can sell this back for at least 97% of what you paid for it.
This is an "if" situation. You're assuming a best case scenario. Again the odds are stacked against you according to the studies and no way of knowing if there will be fraud involved in this investment.
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after reviewing the prospectus, balance sheet, etc
Makes no difference. Doesn't change the fact that it's a non-traded REIT. Avoid non-traded REIT's.
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If a fee-only financial planner suggested this to me
A fiduciary is going to steer you AWAY from non-traded REITS.
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Old 11-14-2013, 04:58 PM   #17
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This is all enough information for me to understand this is not the investment vehicle for me...that is for sure. I have owned real estate and sold it for gains but am currently renting in a very high cost of living which is only temporary. When I get back to my lower cost of living area, mainly housing...I will buy real-estate again. That won't be for at least another 18months.
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Old 11-14-2013, 05:12 PM   #18
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I add 5% domestic REITs in my AA. It's all VNQ, which has probably increased 300% over the last five years (which pretty much starts at the market bottom). Almost anything will look good over that period, and investments that really crashed and then really recovered (like VNQ for that matter) will look even better if you just look at the last five years. I'd stick with the mainstream investments.
I second this. If I want a REIT I go with VNQ. About 5 % of AA in my case as well.

And I do it in 401k or IRA because REIT is like interest when it comes to taxes.
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Old 11-14-2013, 05:20 PM   #19
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I couldn't disagree more. Friends and people you think you know rip people off all the time!!! VERY common! Even if they're honest, they have no advantage over anyone else in the business world.
You don't have to be friends with the guy; you have to know him or of him. He can't have a reputation for being shady. Having done previous business with him and having had things work out makes this better.


Quote:
The bottom line is that if it's not a PUBLICLY traded investment (traded on the stock exchange) then there's no telling what kind of fraud or conflict of interest is going on and the SEC won't be monitoring your non-traded REIT investment like they do with publicly traded companies!
The state authorities will be, though. You can't just sell completely unregistered investments without approval from the State's Attorney General's office, normally. (It's been a while since I took the Series 63).

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This is an "if" situation. You're assuming a best case scenario. Again the odds are stacked against you according to the studies and no way of knowing if there will be fraud involved in this investment.
Well, this is something that requires a bit of judgment and math. For instance if there's a 5% sales charge, you certainly can't.

If shares trade hands 2x a year, you probably can't.

Future outcomes are random events, but if you expect to lose less than 3% of your investment once you drive it off the lot, it's not a terrible deal.

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Makes no difference. Doesn't change the fact that it's a non-traded REIT. Avoid non-traded REIT's.
A fiduciary is going to steer you AWAY from non-traded REITS.
A smart fiduciary is going to think about it if there's a liquid local market and ideally if you're buying on the secondary market. Normally I'd be against this too, but it makes a heckuvalot of sense to buy an asset earning positive returns that is correlated with what you want to buy.
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Old 11-14-2013, 05:44 PM   #20
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This is all enough information for me to understand this is not the investment vehicle for me...that is for sure. I have owned real estate and sold it for gains but am currently renting in a very high cost of living which is only temporary. When I get back to my lower cost of living area, mainly housing...I will buy real-estate again. That won't be for at least another 18months.
OK. So that does it for me. I wouldn't buy one of these illiquid things, pay the bid/ask spread or sales charges etc, to hold it just 18 months to hedge yourself against rent increases in a completely different area.

Stick the money you were going to invest in a well-diversified national REIT like EQR or AVB. When you buy a home, sell EQR and AVB and use the proceeds to help with a down payment.

The correlation between the REIT and real-estate market isn't great, but you don't have REITs in your portfolio, it ought to offset some of your consumption; you're a really good candidate for owning REITs.

For your situation, I'd contribute this money to a Roth IRA, buy a residential REIT, then sell and reinvest in other instruments when you buy a house.
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