What Kind of REIT Is Right?
Most financial advisers like real estate trusts and funds, but they're divided on which is the better place to park a chunk of your money for the recommended minimum of five years.
Meghan Bergman, a vice president of Lenox Asset Management Group, oversees portfolios for so-called "qualified" investors – those with at least $1 million to invest. She prefers private REITs because "they're less volatile than those that are publicly traded," she says. Private REITS have historically delivered 6 to 8 percent annualized returns.
An index of publicly held REITs, though, rose 36 percent in 2006 and then plunged 17 percent in 2007. Publicly held REITS are likely to be hit harder and longer by the credit crunch, she believes.
But what if you want to get out of the private REIT to rebalance your portfolio? Good luck. You'll have to find another qualified investor to buy your stake.
That's why Nicholas Laverghetta advises that his clients at Brinton Eaton Wealth Advisors go with exchange-traded funds. "It's a basket of REITs that's not actively managed, so it keeps costs down," he says. As dividends pile up from the underlying cash flow, the funds make it easy to regularly rebalance your portfolio.
And Laverghetta also recommends stowing these REITs in retirement accounts to shelter taxable income – a ploy that could help mitigate some of the onerous tax implications of owning real estate that throws off income and, hopefully, appreciates as well.
