Tags: REIT | Funds | Real | Estate

REIT Funds Offer Real Estate Exposure With Income on Top

Thursday, 19 April 2012 07:10 AM

The gurus say to always buy the investment that is out of favor, the sector or asset that has reached its moment of “maximum pessimism,” to quote the late Sir John Templeton, founder of the Templeton Funds.

Is there any asset more despised right now than housing?

Now, calling a bottom is hard work, and it can be easy to miss. But there are some compelling numbers to consider:

1. The Case-Shiller Home Price Index, the gold standard of comparative house pricing, is at 127.32. That’s above the median (117.68) for the index, which goes back to 1890. And above the mean (120.76). But not by much, and there’s no guarantee that it will drop below those points. It has fallen from its historic high of 218.24, set in January 2006.

2. The 10-year Treasury is at 2 percent, not much above the all-time low of 1.95 percent in January 1941. Wartime bond yields have become normal. The credit crisis was bad, but World War II bad?

3. A 30-year mortgage right now will cost you less than 4 percent. A 15-year will run you less than 3 percent. A 5-year fixed that turns adjustable is even lower. Money hasn’t been this cheap in years.

4. John Paulson, the hedge fund guru who made billions in the housing collapse by betting against subprime mortgages, is long housing via residential and commercial mortgage securities, reports Bloomberg News. (Interestingly, Paulsen also has been a vociferous gold bull.)

Editor's Note: Obama Donor Banned This Video But You Can Watch it Here

One way to play a housing recovery, of course, is to buy homebuilders, such as Pulte Homes (PHM), Lennar (LEN), or Toll Brothers (TOL).

Another is by way of construction industry stocks, such as Vulcan Materials (VMC), Martin Marietta Materials (MLM), or Cemex (CX).

If individual stocks are not your bag, or if you need income, another route is to consider is real estate investment trusts (REITs). Some of the bigger and better-known REITs can be purchased via cheap exchange-traded funds, and they pay a nice, strong dividend while you wait for the rebound.

The REITs in these funds go beyond residential housing to capture growth across the real estate market, in commercial projects, hotels, even telecommunications tower sites. Some REIT ETFs to consider:

1. Vanguard REIT ETF (VNQ): Year-to-date return of 10.61 percent, pays a 3.36 percent yield.

2. Schwab US REIT ETF (SCHH): Year-to-date return of 10.70 percent, pays a 2.22 percent yield.

3. iShares Dow Jones U.S. Real Estate Index Fund ETF (IYR): Year-to-date return of 10.60 percent, pays a 3.54 percent yield.

4. Wilshire US REIT ETF (WREI): Year-to-date return of 10.19 percent, pays a 2.99 percent yield.

Editor's Note: Obama Donor Banned This Video But You Can Watch it Here

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Thursday, 19 April 2012 07:10 AM
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