Stocks bounced back on Friday following a pair of strong U.S. economic reports and as investors reassessed concerns from news the previous day that the Biden administration could seek a big boost to capital gains taxes for the rich. The S&P 500 advanced, led by financial and tech shares, while the tech-heavy Nasdaq jumped and the Dow Jones lagged. Homebuilding stocks were a tower of strength, as data showed U.S. new-home sales rebounding sharply in March to the highest since 2006, and a measure of output at U.S. manufacturers and service providers reached a record high in April. For the week, the S&P, Dow and Nasdaq all closed with small losses.
Spike in new home sales brings a topic that many investors have struggled with – should one own real estate privately or would they be better off investing in real estate stocks?
Future Weath’s View
Warren Buffett, the man who has unquestionably figured out how to invest wisely, never owned real estate as a part of his portfolio simply because, in his own words, from one of his famous annual shareholder meeting – “If you are an active investor, you’re more likely to find better deals in the stock market, including REITs, than in private real estate.”
While there are those who will swear by their investments in real estate, the fact is that mispricings are more frequent in the stock market because most investors are short-term-oriented and quick to panic when they see their stock decline in value. And, there is the thorny subject of maintenance with owning real estate. A lot of investors make the mistake of assuming that real estate is a passive investment when in reality it can be management intensive. You are dealing with the dreaded 3 Ts: Tenants, toilets, and trash.
With real estate investment trusts (REITS), we believe that investors get the best of both worlds – invest in real estate but not have to worry about the 3Ts and, REITS are a liquid investment vs owning homes or apartments. Still, if one prefers to be landlord vs a REIT ETF owner, we wish them well.