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Sorry if this has already been addressed before.
If someone is considering RE as an investment, what is the point of buy-and-hold when there are REITS available nowadays ?
Say if you have $1M in cash and you do not need the money for the next 20 years, which option would give you better returns?
1) invest in REITS or
2) buy a condo and rent it out?
I looked at the stock price of residential REITS, for example Equity Residential (EQR).
For the past 20 years, the stock price of EQR goes from $13 to $57, ie 439% in 20 years.
So I ask myself, in order for a Manhattan condo to match the return of REITS, the price of the condo has to Quadruple in 20 years, which I am not sure if that is possible even for the red hot Manhattan market.
Some may say if owning a condo, you can collect very decent rent in Manhattan. That is true but then the property tax and condo fees are so high in Manhattan, most properties I looked at will give you only 3-4% return even if that is an all cash purchase with no mortgage. Well, most REITS give you at least 2-3% annual dividends anyway, and you don't have to deal with tenant issues for 20 years.
Am I missing something or is REITS really a better option for people who want to invest in real estate long term?
What is the worst that can happen with REITS? If they go under, I assume the shareholders will have claims to the properties (real assets) owned by the REITS, so it's not like I will be left with a piece of paper like other stocks. Am I correct?
Are REITS more risky compared to the traditional buy-and-hold strategy because it is a stock and maybe subject to 3rd party manipulation beyond my control? Under what circumstances will it make sense for someone to buy a rental property?
Any advice would be appreciated...thanks
What happened if you bought Ggp before bankruptcy? Can a REIT leverage too much? Tax implications of REIT payout? Are you buying at book value? Is the book value equal to market value? Are you paying a premium for convenience? Commercial REIT vs residential? Do you expect past performance of a single stock to be the predictor of the future?
Superwoman I think you might be relying on timing too much. PPS was 9.70 in 2009 and is now 47.55. If you rode that one up you would live up to your name well.
I think it all boils down to whether you think RE will have the growth in the next 20 years to match the growth (or would you say "correction") of the last 20, or 3. GDP growth in the US does not support such increase, so it is instead a bet on inflation, no? It might also be a bet on removal of deductions that both candidates seem to hint toward, which increase the value of rentals vs. buying.
That should read "GDP growth in the next 20 years..."
Pier45, timing is a factor for sure especially with RE cycles, that's why I looked up historical performance going back 20-30 years as that is how long I intend to hold onto my RE investment. And yes it has a lot to do with inflation too. The reason I like RE is because rental income usually keeps up with inflation.
300_mercer, are the tax implications for rental income more favorable than the tax implications for REITS payout? I understand that past performance of a stock cannot predict future returns, but the same goes with owning a rental property too. If anything, owning REITS may help diversify your risks because you are owning a basket of properties in different locations, of course you are paying a premium for that.
REITS look good to me on paper in many ways, but my BIGGEST BIGGEST concern is that all the decisions are left with the management, like you suggested, my investment will be at the mercy of the management and they may be taking on too much risks and there is nothing I can do about it. That is the biggest drawback as i see it.
Neither. Multifamily properties.
So far, both of your threads I have seen on here are asking questions about investing a lot of $ in RE, something which you appear to have little experience in.
While getting advice on a board is great, you should really find someone in the industry with experience to guide you.
MAV, I don't have a lot of $. The numbers I used are for discussion purposes only.
With MF properties, I am concerned about tenants calling in the middle of the night if there are plumbing emergencies etc. Condos give me a buffer because the tenants will likely contact the super or management first in case of emergencies.
Where can I find someone in the industry with experience? You mean RE agents/brokers?
Unless you plan on being the super or management company, tenants would not be calling you anyway.
Sounds like you need to talk to property managers or owners. There are also real estate advisory companies. I would not ask a broker how to invest, as they will likely think that niche is where you should invest in. Many times, especially there days, companies are looking for capital partners because of lager down payment requirements to acquire properties, or for cash infusions for existing properties.
Why not diversify? Why limit yourself to only real estate funds?
But, generally, you get more diversification with a REIT than you would with ONE property on ONE block in ONE neighborhood in ONE city.
REITS ARE DOWN 20%. condos are not
Since the May 2 comments, shares of the companies, which use borrowed money to make $400 billion in credit market bets, dropped about 19 percent through yesterday and the value of their assets has plunged after the Federal Reserve triggered a flight from bond funds by signaling plans to slow its debt- buying program.
Well, there are a couple of things.... Mortgage REITs don't own the property or earn rental income. They are long mortgage backed securities or lend money to homeowners (i.e. like mortgage banks), so these act like fixed income instruments/bonds and would fall substantially as interest rates rise. So they are not equivalent to owning condos. These are most affected by rent rate rises if they are leveraged further by borowing short term (their borrowing cost rise) while the value of their fixed income mortgages fall.
Equity REITs on the other hand own properties outright and get most of their incomes from rent. They'll still be affected by rise in rates if they did not lock in long term financing and are leveraged.
The right comparison (for equity REITs) is not looking just at condo prices because u're only comparing assets and not liabilities. It should be comparing the net value of the assets vs liability. Remember, when u invest 100k in REITs, they don't just buy 100k of properties. They would be potentially borrowing another 900k to invest in 1mn of properties, and the borrowing is likely short term. So it's like buying a condo with 10% cashdown with ARM interest rate on the bank loan. In this case, a lot of your net worth gets eroded by the projected increased financing costs (15 rates are up over 1%, giving a "loss" of 15% over 15yr by way of projected interest cost).
For Mortgage REITs - I meant these are most affected by "interest" rate rises, no rent rate rises
And I meant 15yr rates are up over 1%
"For the past 20 years, the stock price of EQR goes from $13 to $57, ie 439% in 20 years."
Oh, this hurt my eyes, my brain, and perhaps my very soul. Sweetie, dearie...please...UGHHH!!!! REITs, like all high-dividend stocks, get some or even MOST of their returns from dividends. If you invested in EQR 20 years ago and reinvested the dividends you would be up 1,080 percent. If you don't have a bloomberg, their are plenty of free sites that will show you the TOTAL return. Even YHOO finance shows the DJ US RE index as both pure price and with total return (for ETF investing.)
BTW that comes out to a CAGR of 13.2%. The DJ REIT total return index was up 649% total or a CAGR of 10.6% over the past 20 years. The Real Estate (not just REIT) had a CAGR of 9.6%.