Do any of you like REITS in 2016?

Question

I am starting to do some research on investing in REITS. I am not talking about the brick and mortar REITS, but financial/mortgage REITS. I know that there are interest rate risks as when rates go higher the REITS will get hurt. How many of you guys think that there will be couple more rate hikes coming up in 2016?

Just curious to see if there are any REIT investors here. What do you think are the pros and cons of owning a REIT?

Greg Scott · Answer

REITs are highly correlated to the stock market. REITs do not give you many of the real benefits of investing directly in real estate such as 1) buying below market value, 2) depreciation expense, and 3) leverage. On top of that, you pay the management company a large fee to manage the portfolio.

Once you get good at real estate investing, you see a REIT like a bad stock investment.

Russell Brazil · Answer

I own a little bit of AGNC. It is VERY risky though. The face value of it has gone down quite a bit the last year, but the dividend has added much of the losses back in. However this is a very small portion of my stock portfolio. It is probably my smallest holding, and I would be perfectly ok if the price on it went to zero. Im not sure I would recommend owning a mortgage REIT to anyone for anything more than a what the hell kind of purchase.

Ned Carey · Answer

@James Park well if the REITs are trading less than book value then that changes the risk reward ratio. i am not a REIT investor but if you are, that makes them worth a second look.

Matt R. · Answer

@James Park I think I might back into OHI.

James Park · Answer

@greg scott,

I agree with your comments on brick and mortar REIT. I do believe in diversifying my investments and not putting all eggs in one basket when it comes to passive income. What I am talking about are mREITs which are financial REITs vs the brick and mortar REITs.

Chris Martin · Answer

I'll stick with the Highwoods Properties (HIW) types. Screw these AMH types. Real REITs I've held for a decade ... I still like. So a "hold" from my perspective. I'm not buying anything in this market. As William O'Neil says, don't try to catch a falling knife.

James Park · Answer

@ned Carey,

Yes. I agree with your comments that mortgage reits are vulnerable to rising interest rates especially if the financial reits are leveraged.

Just as the energy sector (nat gas, crude oil, agriculture) are beaten down, I think that the Financial reits are trading 21% below book value and the reason for this is the rising interest rates are already priced in causing these reits to trade at such distressed levels. Rarely will you see these financial reits trading at a premium, but from my research on average the financial reits have Traded at a 2% discount of its book value and I like how liquid these Financial reits are vs the brick and mortar reits. The Financial reits are immune to the crashing commodity prices we are seeing today, mortgages are secured and much healthier today due to rising property values than they were during our last mortgage melt down 8 years ago.

Ned Carey · Answer

I don't like the idea. Interest rate are going up. no one knows when but they are clearly going up. It is simple the odds that interest rates go down significantly is low. The risk they go up short to mid term is modest, long term it is high. Why would you go into debt when the odds are against you.

There is just no room for interest rates to go down much farther. There is plenty of room for them to go up.

James Park · Answer

Bumping this thread. How many of you actually own financial/mortgage reits ?

Do any of you like REITS in 2016?

Do any of you like REITS in 2016?

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