I'm mulling over the idea of dumping cash into REITs to eventually use for buying a second home. Probably in some type of "build > move in > sell first home" scenario so I'm in no hurry and dont need to deal with contingent sales, bridge loans, or similar complications. Superficially this "should" be sensible since I'd effectively be investing in real estate until I eventually sell that to buy real estate. In theory that "should" garner a better return than money markets while also hedging against real estate volatility (if housing prices halve or double my home buying power would move with it).
HOWEVER, when I move out of theory land and put my quant hat on, it looks like REITs have been in the toilet for a decade or more. They appear to have comparable risk to a simple stock index fund while only garnering half the return if that. Why is that? Did REITs boomer it up by investing in commercial real estate and spend a decade being :shockedpikachu: that strip malls and office towers became obsolete when the internet was invented?
Is there any sane reason to invest in REITs, or are they as garbage as my inner quant thinks they are? On paper it looks like I should just shove this money into equity index funds since my time horizon is murky and I could just defer buying a second home if a black swan event comes along and tanks stocks by 30% overnight. That just feels...counterintuitive to how the market "should" work and seems too easy.
I'm mulling over the idea of dumping cash into REITs to eventually use for buying a second home. Probably in some type of "build > move in > sell first home" scenario so I'm in no hurry and dont need to deal with contingent sales, bridge loans, or similar complications. Superficially this "should" be sensible since I'd effectively be investing in real estate until I eventually sell that to buy real estate. In theory that "should" garner a better return than money markets while also hedging against real estate volatility (if housing prices halve or double my home buying power would move with it).
HOWEVER, when I move out of theory land and put my quant hat on, it looks like REITs have been in the toilet for a decade or more. They appear to have comparable risk to a simple stock index fund while only garnering half the return if that. Why is that? Did REITs boomer it up by investing in commercial real estate and spend a decade being :shockedpikachu: that strip malls and office towers became obsolete when the internet was invented?
Is there any sane reason to invest in REITs, or are they as garbage as my inner quant thinks they are? On paper it looks like I should just shove this money into equity index funds since my time horizon is murky and I could just defer buying a second home if a black swan event comes along and tanks stocks by 30% overnight. That just feels...counterintuitive to how the market "should" work and seems too easy.
(post is archived)