They’re alREIT with me π
Recently we’ve had some questions about REITs. I am by no means an expert, but can probably stretch to cobbling something together, and then hopefully more knowledgeable people will chime in with comments π
A REIT is a real estate investment trust. It’s basically an index fund for real estate.
Much like an index fund does for stocks, REITs provide diversity, low costs, and liquidity. If you wanted to assemble a diversified portfolio of real estate without using REITs, you would have to buy multiple properties in various locations. Impossible for most outside the super-rich.
A REIT is a legal entity, and they are obliged to return most of their profits to shareholders as dividends.
Types of REITs
There are of course various types of REITs. Broadly speaking, the main options are geographical (where is the property?) and focus (what kind of property?).
So you can choose between Japan REITs (where all the property is in Japan), US REITs, world REITs, etc.
You can also choose between commercial, residential, and more specialized options (like medical, retail, warehouse, etc.).
Examples of REITs
You can see a list of Japan-based REITs here. My wife owns 1345, an index of REITs. Kind of meta, that one.
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You could probably do better by choosing sectors and individual REITs yourself, but we are happy not to have to think about it too much.
Why would you want to own a REIT?
Mainly for diversification purposes, and for income.
REITs should behave like property, so they are probably not going to move at the same time and in the same direction as shares (they are less correlated).
The yields on REITs tend to be higher than bonds/stocks too.
What are the downsides?
As long as you are holding an appropriate amount of REITs as part of a diversified portfolio, I don’t think there are any major downsides. They probably won’t grow as much as stocks, but should be less volatile and provide more income. It’s probably worth looking at fees and making sure you are not paying too much.
What do you think? Do you own REITs? Any recommendations? Did I miss anything important in the post?
I think I’ve mentioned it on the forum (if not the new, then at least the old).
I have an allocation for JREIT in both my Nisa and ideco. I try to keep it to 7.5% of my stock allocation (which is 85% of my total allocation) so it turns out to about 6.3% of my total allocation, but I have been thinking about possibly reducing it (as in not buying anymore, but not selling any either).
As long as you know why you have it (or why you don’t want as much of it in the future) both sound reasonable options π
My wife owns 10% of 1345 as well, based on my recommendation, based on discussions on your forums.
My personal take is that most individual investors might be better off forgoing the traditional bond allocation, and instead pivot to a low cost REIT index ETF as they approach retirement.
The main reason is that real estate usually provide a stronger hedge against inflation, something which is not always the case for bonds.
For those among us who can afford it, directly purchasing then renting out real estate provides the most rental income on an absolute monetary amount, whilst building additional equity as the mortgage gets paid off.
That said, being a landlord can easily become another full-time job what with the various issues which need to be attended to on a regular basis.
I also bought some Japanese and international REITs to diversify. However, Japanese REITs haven’t done so well recently. This article outlines some of the reasons.
https://asia.nikkei.com/Markets/Tokyo-Market/Financial-watchdog-s-scrutiny-crimping-Japan-REIT-market-dynamics
Thanks for that RetireJapan.
I also bought a small amount of a J-REIT (1343) in my NISA this year. Really just because the general impression I got from reading the forum here was that those more knowledgeable than me (i.e. everyone) seemed to think it was a good idea to have some REIT holdings.
But after seeing how the REIT fund has performed compared to the others I bought (it has fallen in value), I doubt I am going to buy anymore for the time being.
That is fair enough!
However, I would caution making decisions based on past performance. Buying something because it has gone up (Bitcoin?) may benefit from momentum, but isn’t necessarily going to work out.
Likewise for selling or not buying things that are doing less well. You never know when the pendulum will swing back… π
Yes, I understand what you are saying.
It makes sense, and it is explained well in books like “millionaire teacher. To be honest I’m kind of in two minds whether to stick with buying the REIT for a while to see what happens. But it’s hard to keep plugging money something which has performed so poorly compared to everything else–especially when I don’t really know much about the theory behind investing. The article linked to by FoolsGold didn’t really make me feel very optimistic either.
Are Japanese REITS likely to pick up sometime over the next decade or so? Is there any way to know? Do the other members plan to stick with them?
This might be a factor for what kind of REIT you choose: https://qz.com/1112368/abandoned-land-in-japan-will-be-the-size-of-austria-by-2040/
A question still persists! I don<t have experience with NISA and I’m concerned about using my (new2018) NISA account for the less tax-efficient products as much as possible. Are the dividends received from REITs (or any other high dividend assets for that matter) bought in a NISA taxable? The problem of ει ι with the NISA is not clear to me!
Hi Alex
Dividends are not taxed in a NISA account (unless they are US-listed and subject to the withholding tax).
Hi Ben. Does βUS listedβ refer to index funds or stocks that are listed on the New York Stock Exchange?
Well, any US stock exchange. The US government charges a 20% withholding tax on them (reduced to 10% for Japan residents).
I have been investing in Tokyu REIT (8957) for the past few years. I’m fairly happy with the 4.4% dividend income it creates each year (based on purchase price). It owns a number of buildings in really popular areas, including the Shibuya crossing.
BTW
You should REALLY do a blog post about how to set up a Rakuten Securities account for buy and hold activity, touch the different points they have there to minimise your cost etc. Could be a nice article π
…I’m a little bit confused on some of the stuff there, and since I think 2018 I’ll be buying some Vanguard, I’d like to make sure for example that dividends, if any, end up in dollars in my sec account etc…
or can I actually move my stash of euro’s from different bank to there for some FX shenanigans…