A family member has some money in her TIAA-CREF REIT, and said it earned 11% this year. She asked her advisor if this would be safe going foward, with the cooling real estate market. The advisor said not to worry, since the REIT makes money off lease and rental income, which will be unaffected by any depreciation. Does this make sense? (I don’t know the name of the fund.)
REIT’s have had an amazing few years. I have some money in Cohen and Steers REIT fund, which has also done well. Vanguard has a REIT fund which has done even better.
The outlook for REIT’s is reasonably good, but I would not have all of my eggs in one basket. How diversified is this family member? If she has 100% of her money in the TIA-CREF REIT fund that is not a good thing. REIT’s are good as part of a diversified portfolio. I wouldn’t have more than, say, 15-20% of my money in REIT’s.
My TIAA-CREF account is finally allowing us to buy into their REIT. For some reason, California wouldn’t allow us to add the REIT to our CREF retirement–until, of course, the most massive boom in real estate had run its course.
Now that I can buy into it, I am allocating 5% of new money to it–but I have 30+ years until retirement and I am bullish on looong term RE. Besides, they own commercial RE, which is looking good right now, and, as was previously mentioned, they make money off of rentals, etc., which is looking up. BUT, before getting too excited, go back and read the President of TIAA-CREF’s message that came in the same newsletter that announced we could finally buy their REIT–it was decidely guarded, if not bearish.
Lastly, it’s good to remember that RE really is local and much of the country is not in a bubble. TX, MI, NC, GA, etc. have not broken out of their long term trends–unlike SoCal, Boston, D.C., FL, NY, which have (had) gone completely unhinged.
I anticpate that a geographically diverse REIT, such as the TIAA-CREF will take significant collateral damage during the housing shake-out, which might be a great time to buy it, for long term (10+ years) IMHO.
TIAA-CREF Quarterly Performance for the Period Ended 9/30/2006:
… TIAA Real Estate Inception Date 10/2/95 … 3 mo return 3.43% YTD return 11.76% 10 year return 146.92% Annual Expense Ratio 0.63%
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