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Old 04-01-2013, 04:14 PM   #21
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Originally Posted by jon-nyc View Post
For me its a no brainer. When I invest in the stock market, I buy index funds, not single stocks, because the risk I want to expose myself to is that of the broad equity market, not the various risks associated with owning a lot of one particular company.

Same with real estate - with a broad REIT index, I get exposure to what I want (real estate) and NOT the specific risks of a particular town, neighborhood, or address, not to mention the risk of particular renters.

Oh - and with VGSLX you don't even have to go collect the rent! They deposit it right into your account!

I echo that -- I have better use of my time than dealing with rentals, and besides, the pay is lousy!


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Old 04-01-2013, 05:22 PM   #22
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i echo that -- i have better use of my time than dealing with rentals, and besides, the pay is lousy!

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Old 04-02-2013, 08:35 AM   #23
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Originally Posted by Stalin View Post
It seems to be that going with a REIT would be a better idea than buying a property myself. I'm not at the point in my financial life or career where I am ready to settle down and live in a specific town for the next 10+ years. Plus despite the fact that I can make the 20% down payment and the mortgage, that would be a huge commitment.

However if I bought a multi-unit home (2 or 3 units) and lived in one, that would save me decent money (assuming I lived in a city where I felt comfortable staying long term. Due to my career choice I may eventually have to move to a city with a high cost of living, which would be totally different than the real estate prices in the midwest). After factoring in the money I'd save on rent and the income I'd get from renters, that adds up to about $1500 in lower expenses and higher revenue on a property that may only cost me 100-130k. That is almost an 18% ROI annually (assuming the mortgage is paid off). REITs are offering closer to 2-6% a year. Even if I got a duplex, it seems like a 10% ROI in lower expenses and higher income would be pretty plausible. Most REITs don't offer that.

But like I said I'm not ready to make that kind of investment.

Are REITs a better idea than dividend stock for short/medium term investments? What do people like for short/medium term investments?
I assume by "owning a property yourself" you mean residential and renting it out to individuals to live in. This differs from an REIT, which invests mainly in commercial real estate, but there are some residential aspects to it. Plus, you get a diversification benefit. I would look beyond the "ROI," as most people overstate it and look more at the PITA owning a rental would be.

One thing many people don't talk about is exposure to RE outside of the US. It is a newer thing, but VG does offer an ETF for international REIT, VNQI. Boglehead's have put it under the microscope...some tidbits.

Bogleheads • View topic - How (and whether) to add Global ex-US Real Estate?

I don't have any disagreement with the diversification benefit. My issue is with the cost of these funds. The expense ratio for a foreign real estate fund is high, and global real estate funds not much lower even though the global real estate funds holds about half in US REITs.

Rick Ferri
From Bernstein's Investor's Manifesto
Another asset class worthy of consideration is international REITs — property companies in Europe, Asia, and Australia. Like U.S. REITs, they have suffered recent massive price falls, and consequently yield dividends in excess of 8 percent. They may also offer even more diversification than their domestic cousins. Their only drawback is that they are only available in passive funds to independent small investors in ETF form, and thus incur commissions and spreads. Since this asset class should not constitute more than a few percent of anyone's assets, I do not recommend including it in a portfolio unless its size is at least several hundred thousand dollars, and you can tolerate a highly complex mix of assets.
I sliced my REIT allocation to half US/Int'l and added some exposure (5->7%). I'm young (30) and I think there is a lot to be gained from international countries as they move into the developed world, and the already developed countries. I don't have the 5% earmarked for "testosterone" investing, so instead of trying to pick individual securities, I bought an int'l REIT.
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Old 04-02-2013, 09:04 AM   #24
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Originally Posted by mickeyd View Post
Owning the Vanguard REIT index fund does not require me to answer the phone at 2AM to hear all about the backed up toilet in the rental unit. That's enough of a reason to own REIT.
If you employ a manager you don't need to get those phone calls.....generally they'll charge between 5% and 10% of the rent.

Buying a rental property in a good neighbourhood was one of the best things I've done financially and ER wise.

I live in a 2 family house and manage it myself because it takes so little time and effort. I've always had good tenants. I do the small jobs myself and call in the professionals when it gets too complicated, just as I do in my own apartment upstairs. Now that the mortgage is paid off the $1200/month I get in rent is really nice, and once I stop work it will be great to know that someone will still be paying me a check every month. Also if I move downstairs and rent out the slightly nicer and bigger apartment I live in now I could increase the rent check to $2000/month, but I'd have to deal with renting to a family or other group of people so it might be more work, still I have the option.

“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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