Reits got spanked

[Zaphod]

hightower wrote:

I’m curious why VNQ (Vanguard REIT Index Fund) is dropping so much lately?  I’ve read that REITs are expected to do well under the new tax law, so why are we seeing the price of these index funds dropping so dramatically right now?  Not going to change my investment strategy, I’m just trying to understand it’s behavior.

 

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Its a fund of REITs, rates are rising. REITs are rate sensitive instruments (like bonds, utilities) as they hold mortgages, tenants, etc...individual company sensitivity will depend on a bunch of factors . In general, rates are a large component of that. Sometimes investors dont really care if a particular company isnt as sensitive as another, but just rotate out of a whole sector due to head winds.

How the new law effect REITs specifically and to what extent (idk myself), has to be balanced with how much rates and other factors will. Attached a graph of 10y rates and VNQ. You can see the interplay. Not saying it will always be so negatively correlated, but thats been the behavior for a while.

 

[hightower]

I'm curious why VNQ (Vanguard REIT Index Fund) is dropping so much lately?  I've read that REITs are expected to do well under the new tax law, so why are we seeing the price of these index funds dropping so dramatically right now?  Not going to change my investment strategy, I'm just trying to understand it's behavior.

 

[FIREshrink]

Time to buy bonds

[adventure]

DMFA wrote:

Never held a REIT fund.  I’ll let the real estate portion of my overall portfolio be direct ownership of rental properties once I branch into that.  …guess I’ll be my own REIT?

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Can I buy 5% of it??

[Zaphod]

thevaluedoc wrote:

thevaluedoc wrote:

 

erockin wrote:

Why did VGSLX get spanked today?

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Due to rising real rates, i.e. a rate play. Not just Reit but look at 10y UST or TLT. IMHO, we are at the beginning of an inflationary spike that will drive rates up and kill bonds/reits. The biggest question I have is if this is the beginning of the  bear market in bonds will equities rise (b/c no other place to put the $) or fall (as financially engineered fake companies/financial products implode due to a rate spike). If this persists, the pain train is just getting started. For full disclosure, I owned a 30y TIP yielding ~2.2% and sold about 60% the past 4-6 months. Still holding other 40% b/c if this happens, the powers that be will do everything to force a negative rate environment. Plus, this I inherited this TIP, so there is some sentimental value.

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What did TLT do today?

What did REITS do today?

Although most on here don’t worry about the day to day (yeah right), TLT and REITs will likely bounce but this is just getting started IMHO (especially if China and Sushi has anything to say).

thevaluedoc today.

the near future, if/when those buying reits, bonds and most likely stocks realize that it was all one big bet on interest rates.

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Yep, Reits, Utilities, etc...all these sectors are interest rate sensitive and "dividend investors" have been bidding them up relentlessly the last 10 years. There is indeed also a component to stock valuations as the interest rate is right there in the denominator and if it decreases than valuations rise, theoretically of course. Empirically, stocks usually dont have much issue until rates near 5%, but I'd guess that nominal number is lower than it used to be, who knows where but 3.5% 10y would be interesting. 10y rate is now finally higher than the SPY yield so, lots of exciting things in the next couple years.

[erockin]

You are mistaken. That post was not meant for you. It specifically stated who it was meant for and I subsequently apologized to them. That’s what the bigger man does.....

Your explanation initially made sense but there was not any interest rate hike mentioned today so why a 1.8% drop?

[erockin]

There is a progressive beating in VGSLX. Any thoughts?

[DMFA]

Peds wrote:

DMFA wrote:

REITs have been rubbish lately – the Big Box is dying, and a lot of it is in shopping mall companies like Simon – but it might be the time of year that it pays its big annual distro and takes it out of the NAV, but you get more shares in the distro so it evens out on your balance sheet.  Plus, with so much of REIT distro being unqual’d dividends, it’s liable to take a bigger hit than, say, VTSAX whose distro is almost all LTCG and QD.

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so you sold all yours and moved on to greener pastures?

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Never held a REIT fund.  I'll let the real estate portion of my overall portfolio be direct ownership of rental properties once I branch into that.  ...guess I'll be my own REIT?

[Peds]

DMFA wrote:

REITs have been rubbish lately – the Big Box is dying, and a lot of it is in shopping mall companies like Simon – but it might be the time of year that it pays its big annual distro and takes it out of the NAV, but you get more shares in the distro so it evens out on your balance sheet.  Plus, with so much of REIT distro being unqual’d dividends, it’s liable to take a bigger hit than, say, VTSAX whose distro is almost all LTCG and QD.

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so you sold all yours and moved on to greener pastures?

[Zaphod]

Notorious BNG wrote:

o

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They are notorious for abundance of scams and losing money. Avoid.

[Notorious BNG]

Any opinion on private REITs? They claim to be less related to the stock market, although they seem less liquid and I don’t understand their NAV.

[G]

I own both real estate and reits. One is likely a better return. The other has never called me on vacation or ruined a ski day. I guess that would be one idea!

[Re3iRtH]

I've always wondering why folks want to invest in a REITs, putting 100% of the control out of your hands. Why settle for a 5-7% returns (on a good day) from a REIT? Why not just invest in an S&P500 fund? I understand the "non-correlated asset bit", but over the long term, a total market or S&P fund will outperform.

I think people want to feel like they are "investing in real estate" by buying a REIT, the reality of which couldn't be farther from the truth.

I've compiled a short list of advantages when you actually invest in real estate, none of which are available to you when investing in a REIT.

- choose your own market, submarket, etc.
- can find off market deals for massive discounts
- can select a unique "niche" or specialty. Can specialize in something, gaining a informational or submarket analysis advantage
- negotiate your own price
- find and use your own leverage, and leverage terms
- can pick the best LTV on your loan, and modulate your tax benefits, so that you don't pay any tax legally on a paper real estate gain
- can 1031 exchange

- individual deal always return higher per $1 invested than a large apartment, a large apartment always returns more per $1 invested than a REIT invested in a large apartment (more downstream from the profit, more people need to be payed until it trickles down to you)

- can choose to self-manage in lean years, eliminating negative cash flow. Personally haven't had to do this yet.
- can do a cash out refinance. for example: I purchased a condo for $148,300. I refinanced out ~$163,000 in cash, which is tax free money. I was actually payed cash to own this home, and now I am getting a net $650 per month cash flow and have $0 in the deal. Try doing that with a REIT. This isn't even a "home run deal".

I wouldn't invest in a REIT. Returns on leveraged real estate are usually 20-40%, sometimes over 100% like the example I outlined above. You are too far removed from the good returns investing in a REIT. I guess people want variety in their life and settle for the mediocre returns a REIT provides. No idea.

 

[G]

Only US for me, but this is an equally simple and intriguing question!

[ACN]

To those who have a small allocation in their portfolio to REITs, do you guys invest only in US Reits or have some international exposure?  I have about 10% of our portfolio in US REITs, was wondering if I should allocate some of that 10% to International.

Thoughts?