2 part question: REITS vs. Fundrise

Real Estate
#1

Hi Jeremy - What is your advice regarding investing in REITs. My understanding is that they offer significant dividend yields and allow investors to diversify their real estate investments across geographies and/or sectors.

Additionally, there are many real estate- specific platforms, like Fundrise and Streitwise. What do these platforms offer over traditional brokerage accounts, if anything? I don’t have a clear idea of what exactly they’re doing.

Thanks,
Blake

#2

I don’t hate REITs. They provide income and growth over time. Here’s a look at Vanguard’s REIT ETF (VNQ) vs their total market ETF (VTI) over the last 15 years. Pretty close, both did well.

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Some pros of owning a REIT:

  • Diversification into real estate without the work of actually owning or managing physical real estate
  • Greater dividend yield (VNQ = 4.3% vs VTI = 2.0%)
  • Some claim real estate as an asset class is under represented relative to its value in the total stock market index which is primarily non-real estate businesses

Critiques of owning a REIT:

  • Since they trade with so much liquidity, they correlate almost perfectly to the stock market (as you can see in the chart above) so don’t actually offer much diversification
  • The greater dividend yield could represent a tax drag if held in a taxable account

I actually do own a real estate index fund, very similar to VNQ above. When I set up my account, I liked the attempt at diversification, but honestly I think I might have just added complexity without adding higher expected returns.

I haven’t used either. It’s a cool idea. I certainly would like access to high return real estate deals without doing the work. But it could be risky investing in individual deals without much direct knowledge, and potentially not very transparent and under regulated. I’m not necessarily against it, but I’d definitely put that in the 10% of my 90/10 rule

So broad strokes: If you put every penny to your name into a 3-fund portfolio and never did anything else, you would absolutely have a near optimal investing strategy. If you want to alter that a little into these real estate options, that would be fine too.