Valuing Real Estate (REITs)
From the September 2011 newsletter:
In prior newsletters, I made the case for using the P/E ratio to value the stock market and to predict future returns. Now let’s apply the same analysis to real estate, or more specifically REITs.
One crucial feature of REITs is that they are required to distribute almost all their income to maintain their tax status. This means earnings (the E in P/E) can be closely approximated by dividends. And dividend data is far easier to find for individual investors. Even better, the REIT industry provides historical data on their website for budding data scientists.
Investment Options: US Real Estate
This is the latest post in a series covering investment selection. Each post covers an asset class, highlighting selection factors to consider and listing filtered investment options.
Based on the number of visitors who find my site by searching “Is real estate a good investment?“, real estate seems to be a popular investment topic, whether you think it’s a great investment or it’s still in a bubble. As mentioned in that post, I prefer to use REITs (real estate investment trusts) to invest in real estate instead of buying individual properties. I consider buying REITs to be more of a pure investment, while buying individual properties to be more like running a business.
Is Real Estate a Good Investment? (Part 2)
This is the second part of a two-part discussion on real estate. The first part covered buying real estate as an investment, and showed that buying individual rental properties is not an optimal investment strategy. This part covers buying real estate to live in. Before I go into the analysis, let me cover two of the most common arguments I hear for buying vs renting.
"Paying rent is just throwing money away."
How did paying for shelter turn into throwing money away? And where do you draw the line, is paying for your groceries instead of growing it yourself also throwing money away? The real consideration should be whether the costs of buying is more or less than the costs of renting. Remember, buying also has costs that add up very quickly like mortgage interest, property taxes, maintenance/repairs, home insurance, commissions, and closing costs.
Is Real Estate a Good Investment? (Part 1)
When I talk to people about investing and personal finance, the topic of real estate inevitably comes up. This is a fairly broad topic, so I have broken up the discussion into two parts: Part 1 covers buying real estate as rental property, and Part 2 covers buying real estate as a home. In both parts, when referring to "real estate" I really mean single-family residential properties.
Let’s start with long-term statistics. Home prices in the long run (50+ years) have only increased by a small amount above inflation (0.26% from 1890-2009, 0.29% from 1959-2009). And at first glance, this return looks absurdly very low versus stocks (6% after inflation) and bonds (2% after inflation). However, to make a fair comparison, we need to calculate the total return which incorporates the rental income, as well as leverage through a mortgage.
