馃攳
Is Investing In A REIT Worth It? REIT Investing (Real Estate Investment Trust) - YouTube
Channel: Jarrad Morrow
[0]
lately i've been getting quite a few
[1]
questions about investing money into
[3]
reits i have no idea why but if i had to
[5]
guess then it has something to do with
[7]
these skyrocketing real estate prices as
[9]
of late in this video i'm going to go
[10]
through some of the pros and cons of
[12]
investing in a reit when it makes sense
[14]
to do so and where you should actually
[16]
be investing in reits because if you
[18]
invest in them in the wrong place then
[20]
it's going to cost you some money i also
[21]
wanted to get an idea of how an
[23]
investment portfolio with a reit will
[25]
perform so i also back tested a couple
[27]
of different portfolios to show you how
[30]
things would have turned out after that
[31]
i'll of course give you my final
[33]
thoughts on what you should do hey i'm
[34]
jared and on this channel we talk about
[36]
investing and financial independence a
[38]
real estate investment trust is a
[39]
company that buys sells and holds
[41]
physical assets that sit on some sort of
[43]
land for of course real estate investing
[46]
purposes sometimes they're involved in
[47]
mortgages as well but that is a very
[50]
small amount of them there is a ton of
[51]
different rates out there some focus on
[53]
making money through the buy and sell
[55]
side some focus on the buy hold and rent
[58]
side and some do a little bit of both on
[60]
top of that each individual reit will
[62]
sometimes specialize in a certain sector
[64]
within the real estate ecosystem think
[67]
of things like hospitals grocery stores
[69]
restaurants shopping malls cell phone
[72]
towers office buildings casinos and
[74]
anything in between these reits are
[76]
publicly traded on the stock market for
[78]
investors like you and me to put our
[80]
money into this is a great way to
[81]
diversify your overall portfolio into
[84]
real estate without having to handle the
[86]
day-to-day work of managing the physical
[88]
assets there's three main reasons people
[90]
invest in reits the first is to
[92]
diversify some of your overall portfolio
[95]
into a different asset class like real
[97]
estate because real estate is its own
[99]
sector it's not as closely tied to other
[101]
stock sectors for example like tech
[103]
stocks such as apple or automotive
[106]
stocks like ford so if we see other
[108]
sectors tanking in price for whatever
[110]
reason the price of your rates might be
[112]
unaffected or not affected as much if we
[114]
compare a reit index to a total stock
[117]
market index since 1997 we can see that
[120]
a reit index will go through periods
[121]
when it outperforms and underperforms
[124]
the market during that time and if we
[126]
look at the performance over the past 27
[128]
years we actually see that returns are
[130]
pretty darn close with the total stock
[132]
market returning just a little bit more
[134]
a ten thousand dollar investment would
[135]
have turned into a hundred and thirty
[137]
thousand dollars if it was all put into
[139]
reits and a hundred and fifty seven
[141]
thousand 000
[142]
if the money was put into the total u.s
[144]
stock market will this continue though
[146]
who knows the point of potentially
[147]
adding a reit into your portfolio might
[150]
be to protect some of your returns if
[152]
other investments in your portfolio
[154]
underperforms during a certain period of
[156]
time other than that if you want a
[157]
little bit more exposure to real estate
[159]
beyond what you currently have then a
[161]
reit can achieve that for you but if you
[162]
have money invested in a total stock
[164]
market or s p 500 index then you already
[167]
have exposure to real estate of anywhere
[169]
between two to four percent so keep that
[171]
in mind before blindly adding a reit
[173]
because you might already be covered
[175]
real quick if you could do me a huge
[176]
favor and hulk smash that thumbs up
[178]
button it really helps support this
[180]
channel and of course my dog molly the
[182]
second reason to add a reit into your
[184]
portfolio is for liquidity if you want
[186]
to invest in real estate then you can
[187]
either buy physical real estate or a
[189]
reit in my opinion physical real estate
[192]
is the best option of the two but the
[193]
problem with it is that it's not very
[195]
liquid you'll usually need a large
[197]
amount of cash for a down payment and
[199]
there is a steep learning curve i can't
[201]
just go sell my house tomorrow and have
[203]
that cash show up in my account that day
[206]
the process takes weeks or even months
[208]
but with the reit you have access to
[210]
your money as quickly as you can press
[212]
that sell button since they are traded
[214]
on the stock market if you are investing
[216]
in a reit then i'd say to try to treat
[217]
it like physical real estate where
[219]
you're not trying to get in and out real
[221]
fast to make a quick buck but it's
[223]
always nice to know that you do have
[224]
access to the cash if there's an
[226]
emergency and you need it the third
[227]
reason people love investing in reits is
[230]
for those sweet sweet dividends an
[232]
investor receives reits are known for
[234]
paying out pretty healthy dividends
[236]
every quarter or sometimes monthly this
[238]
is a great way to get a consistent
[239]
passive income stream going but don't
[241]
just go investing all of your money into
[243]
reits for the passive income through
[245]
dividends i'll explain why in just a
[247]
minute the big reason real estate
[248]
investment trusts can pay such high
[250]
dividends is because by law they are
[252]
required to distribute 90 of their
[255]
income after expenses to shareholders
[257]
this rule makes it easier for them to
[259]
promise a higher dividend on top of that
[261]
these rates are usually receiving a
[263]
consistent cash flow from their tenants
[265]
and have those tenants locked into
[267]
longer term leases this will translate
[269]
into a steady stream of cash flow every
[271]
single month for all of the great things
[273]
that we can say about rates there's also
[275]
some downsides as well now these aren't
[277]
the be-all and all reasons to avoid them
[279]
altogether but it's just things to know
[281]
about if we think about real estate in
[283]
general the price of it is impacted by
[285]
interest rates that the federal reserve
[287]
chooses since most of these reits are
[289]
going to acquire more assets through
[291]
debt when interest rates rise it becomes
[293]
more expensive to borrow that money to
[295]
purchase additional properties the fed
[296]
has kept interest rates extremely low
[299]
since the housing market crash in 2007
[301]
which has helped increase the price per
[303]
share of publicly traded reits if or
[305]
should i say when they decide to start
[307]
increasing rates again we might start to
[309]
see the price per share for real estate
[311]
investment trusts take a hit over the
[313]
long term the return on your reit will
[315]
be fine but in the short term it could
[317]
look a little bumpy so just be aware of
[319]
that the other thing that i think is
[320]
overlooked a lot by investors is the
[322]
taxes that you'll pay for the dividends
[324]
received from investing in a reit you as
[326]
an investor will have to pay ordinary
[328]
income tax on the dividend distributions
[331]
even if you decide to reinvest that
[333]
money back into the reit so if based on
[335]
your income you are at the top of the 12
[337]
tax bracket the dividends received from
[339]
your reits could potentially push you
[341]
into that 22 percent tax bracket while
[344]
on the surface this doesn't seem like a
[345]
big deal it is from a return perspective
[348]
these taxes you pay whenever dividends
[349]
are distributed to you can have a tax
[351]
drag on your portfolio which will reduce
[354]
your overall returns on that investment
[356]
the good news is that there's a little
[357]
workaround when it comes to investing in
[359]
a reit to avoid paying the ordinary
[361]
income tax every year you would want to
[363]
hold reit investments in a tax advantage
[366]
account like a 401k ira 403b or even an
[370]
hsa that way you are not getting a tax
[372]
bill every year for the dividends that
[374]
they pay out to you try to avoid
[376]
investing in a reit or any very high
[378]
paying dividend stocks within a taxable
[380]
investment account unless you really
[382]
know what you're doing in terms of the
[384]
tax liability and strategy when i see
[386]
people holding high dividend paying
[387]
stocks in a taxable investment account
[390]
it makes me cringe because it's costing
[391]
them a lot of money in taxes every
[393]
single year another thing to keep in
[395]
mind when picking a reit is don't just
[397]
choose one because it pays a high
[398]
dividend while high dividends can be
[400]
great if it looks too good to be true
[402]
then it most likely is you'll need to
[404]
look deeper into the fundamentals of the
[406]
reit to see if that dividend yield is
[408]
even sustainable long term if it's not
[410]
then they can change it whenever they
[412]
want here's two examples of rates that
[414]
had dividend yields in the 20 range for
[416]
a short period of time until it
[418]
eventually came back down doing your due
[420]
diligence on an individual reit stock
[422]
can be time consuming and even confusing
[424]
sometimes but the good news is that you
[426]
can still take advantage of this
[428]
investment class using a re etf which
[431]
makes it way easier to evaluate a reit
[433]
etf is a fund that holds a bunch of
[435]
different individual reits within it so
[437]
instead of buying say crown castle store
[440]
capital or simon property group stock
[442]
individually you can just buy a reit etf
[445]
like the vanguard real estate etf which
[447]
holds those three stocks plus 170 others
[450]
as well full disclosure i'm a little
[452]
biased when it comes to etfs because i
[454]
love them over individual stocks every
[456]
single day of the week but if you want
[458]
to invest in the reit stocks
[459]
individually and you know what you're
[461]
doing then go for it above my head and
[463]
at the end of this video i'll have a
[464]
link to a video that i made on how to
[466]
analyze an etf before you buy it when it
[468]
comes to back testing different
[469]
investment portfolios i had to make a
[472]
few assumptions so keep in mind that
[473]
mileage may vary based on how you would
[476]
construct a portfolio on your own but
[478]
this is what i came up with instead of
[479]
investing a lump sum at once to see how
[482]
it would turn out i wanted to take a
[483]
little bit more realistic approach since
[485]
most of us are going to be investing
[487]
money every single month i set up the
[489]
back test to account for that i chose
[491]
500 per month to simulate something like
[494]
maxing out a roth ira every single year
[496]
because the max contribution limit is 6
[498]
000 divided by 12 months that makes it
[501]
500 per month the first portfolio is
[503]
what i'll call our control portfolio i
[506]
have 100 percent being invested in the
[508]
total stock market like a vti the second
[511]
portfolio has 80 in the total stock
[513]
market and 20 in a re etf the third
[516]
portfolio is a little bit of a play on
[518]
the three fund portfolio except i pulled
[521]
out the bonds and replaced it with a re
[523]
etf for that one i have seventy percent
[526]
in the total stock market twenty percent
[528]
in international and ten percent in a
[530]
reit etf the returns for all three were
[533]
within one percent of each other the
[535]
only one that lagged behind the most was
[537]
the three fund portfolio but that was
[539]
mainly because of the 20 international
[541]
exposure which dragged down the returns
[543]
if we had increased the reit allocation
[545]
to say 20
[547]
and dropped the international down to 10
[549]
then it would have performed just a
[551]
little bit better as always with any
[552]
sort of back testing there is no
[554]
guarantee everything will play out the
[556]
same way going forward i personally left
[558]
my crystal ball at my ex-girlfriend's
[560]
house and she of course won't give it
[562]
back so i can't tell you what the future
[564]
looks like i don't think there's any
[565]
hard and fast rule as to whether or not
[567]
you need to own a reit it's mainly going
[569]
to be personal preference if you feel
[570]
like you want more exposure to real
[572]
estate then go ahead and invest a
[574]
certain percentage of your money into
[576]
one but i probably wouldn't make it a
[578]
larger allocation within your portfolio
[580]
also double check to make sure that you
[581]
don't already have money invested into
[583]
real estate within your index funds
[585]
because i bet you already do this is
[587]
just my opinion but if i had to add a
[589]
reit to my portfolio
[590]
then i'd do it through a reit etf as
[592]
opposed to picking a reit stock
[594]
individually but that's just me though
[596]
make sure to hulk smash that thumbs up
[598]
button before you go check out the
[599]
description to get some free stocks as
[601]
well as more resources and playlists to
[603]
help out with all of your investing and
[605]
financial independence needs i'll see in
[607]
the next one friends done
Most Recent Videos:
You can go back to the homepage right here: Homepage