When will REITs come back to earth?

[soupcxan]

Consider Vanguard's REIT index fund performance:

YTD: +10%
2005: 12%
2004: 31%
2003: 37%
2002: 4%
2001: 12%
2000: 26%

When is this fund going to come back to earth? I want to include it in my asset allocation, but I feel like as soon as I buy it, it will crater...so what to do? Let the dirty market timing begin!

 

[unclemick]

Hmmmm

Why aren't you looking at sectors/asset classes that have been going down for at least five years - seems to me that's where one should go shopping.

Right?

heh heh heh heh - I sold my REIT index in Jan - as part of giving up my 'legend in my own mind status' and going dumb - Target 2015.

 

[Arif]

Why aren't you looking at sectors/asset classes that have been going down for at least five years - seems to me that's where one should go shopping

I've been thinking about investing in large caps for that very reason. Something about buy low and sell high.

 

[wabmester]

The time to buy is when nobody else wants to touch a REIT with a 10-foot pole. 

Just looked at Vanguard's top holding: Simon Property Group (SPG).

They have a market cap of $18B and $14B in debt, so they should be *very* interest rate sensitive.

But they have very fat margins and fantastic YoY earnings growth, so they don't look like they're hurting at all.   For some reason, their earnings growth is like 10x their revenue growth.    Sometimes, that's the mark of a company (or industry) that can only grow earnings through cost cutting, but I don't know if that's the case here.

Bottom line: I have no clue, but I'd say wait 3 more years and they'll be cheap again.

 

[heyyou]

You can risk principle for REIT income at today's prices, but it is not a good investment. Those returns won't repeat, which is what makes REITs so attractive. There is little diversification benefit if their only growth is negative.

 

[saluki9]

I don't know, considering the Vanguard REIT index is yielding over 100bps less than the treasury MM fund I'd say to hold your $$$

 

[wabmester]

I don't know, considering the Vanguard REIT index is yielding over 100bps less than the treasury MM fund I'd say to hold your $$$

That's the way I used to view REITs, but I think it might make more sense to compare the yield to TIPS since REITs are backed by real assets. For example, if I owned an apartment building, I'd expect both the asset value to track inflation and for rents to track inflation.

 

[Delawaredave]

Any International REITs that people like ?

More reasonable valuations ?

 

[Gone4Good]

Sold my REITS 1.5-2 years ago. Serves as a reminder why I try not to time the market.

 

[HFWR]

Any International REITs that people like ?

More reasonable valuations ?

I own IGR, which IIRC is about 50-50 USA/Intl. ER 0.76 and div north of 7%, payable monthly. Btw, held in a tax-deferred acct (401k self-directed).

 

[Cal]

They should come crashing any day now.

This was the last asset class I wanted to add to my mix. I've been waiting for a couple of years and just recently decided to jump in. That should ensure a market correction.

 

[saluki9]

That's the way I used to view REITs, but I think it might make more sense to compare the yield to TIPS since REITs are backed by real assets. For example, if I owned an apartment building, I'd expect both the asset value to track inflation and for rents to track inflation.

That is the way I view my actual RE holdings, but not REITs. History has show us that although that is nice in theory, when the economy hits the skids REITs have a tough time signing long term tenants with escalating rents.

With cap rates starting to rise again, I will be looking more at buying buildings and not REITS

 

[markplus4]

Sold the last of my small REIT holdings into the strength yesterday. Can't see any value in a 6% REIT yield when Money Market offers a safe 5% return. They were good to me in the 1999-2005 time period.