In early March, I was thinking over the Grow Your Dough Challenge that I had completed in 2019 and wondering what I should do next as a financial experiment. Stock market prices had started dropping. My accounts that had investments tied to the stock market decreased in value. One notable exception to the shrinking assets was my Fundrise account, which held its value. That gave me an idea that I wanted to test out regarding REITs (Real Estate Investment Trusts).
A real estate investment trust (abbreviated as REIT) is a company that owns, finances, or operates income-producing real estate and may operate across various property sectors. Many REITs are publicly traded on the stock market, allowing investors to buy and sell them just like stocks in a company, making them a liquid investment. Since REITS are required by law to pay out 90% of their taxable income as dividends, they are a steady source of passive income for investors. Investing in REITs can be a good way to diversify your investment portfolio. However, REITs tend to have low growth and the dividends you receive are taxed as ordinary income. Generally, it is better to invest in REITs through a tax-deferred account, such as an IRA or 401K. Of course, check with a tax professional as to what is the best option for your situation.
Given the same amount of money invested, how would my Fundrise investments perform compared to a selection of stock-exchange listed REITs that are held in a taxable brokerage account?
Fundrise
Fundrise is a crowd sourced real estate investing platform. People deposit their money into a Fundrise account and start by choosing from one of three Core Plans: Supplemental Income, Balanced Investing, or Long-term Growth. I had picked the moderate option of Balanced Investing. On their website, investors have the ability to look through photos and information about each of the projects that their money is invested in through their accounts. Money deposited in your account is allocated for investment in different eREITs based on the Core Plan you have chosen.
After the Grow Your Dough Challenge was completed, I wondered if I could invest in individual eREITs in Fundrise instead of depositing money to the account and having it funneled into multiple eREITs. It wasn’t immediately obvious how to make an investment like this from inside the account. After some searching, I figured out how to deposit $100 directly into the East Coast eREIT in Fundrise. I was going to briefly explain how to do this here, but Fundrise has since changed their website design and now it asks investors to “inquire” if they are interested in investing directly into a single eREIT. It is disappointing that it looks like they have removed this feature from the web and made the process more complex.
I took a screenshot of my Fundrise account, which showed a balance of $1,185.97 on March 10, 2020.
E*Trade
I decided to transfer the investments in my E*Trade brokerage account that I used for the Grow Your Dough Challenge into my E*Trade Trust account in order to prepare it for my experiment. I tried doing this transfer online, but the site wouldn’t allow me to complete the transfer. I had to call into customer service, who thought perhaps the problem in transferring was because one account was in my name and the other was in the Trust’s name and they didn’t match exactly. Anyway, I moved my shares in General Mills Inc (GIS), the SPDR Portfolio S&P 500 High Dividend ETF (SPYD), and the Global X Super Dividend U.S. ETF (DIV). My shares in Brookfield Property REIT (BPYU) remained in the account. Brookfield Property REIT operates mainly in the retail industry and is a subsidiary of Brookfield Property Partners (BPY). Note that on March 2, 2020, this REIT switched from trading under the ticker BPR to BPYU. I left the shares of BPYU there so they could be included as part of my experiment. With their total value just over $300, they would make up the largest investment in the portfolio, at least initially. At the time I began buying other REITs, I had 21.38 shares of BPYU (the fractional shares are from the DRIP), with an average buy price of $16.89 per share.
Next, I needed to choose which other REITs I would buy to fill the E*Trade portfolio. I wanted it to somewhat match up with the eREITs from the Fundrise portfolio. There are six eREITs that make up the majority of the investment in the portfolio, each having a cost basis between $100 to $350. There is a group of nine newly introduced eREITs that make up the remaining 6.3% of the portfolio. Therefore, I decided to have a total of seven REITs in the E*Trade account, six to match up with the main six of the Fundrise portfolio and the seventh in place of those other eREITs with the small amounts invested. For those curious about my Fundrise portfolio, I’ve shared the eREITs list as of April 23, 2020, at the bottom of this article.
I wanted to follow some general guidelines on choosing REITs to buy for the E*Trade account, so I could try to avoid picking complete duds, but I did not dig deeply in my analysis, since I didn’t have the opportunity to do in-depth analysis for the eREITs in Fundrise. I began by looking up REITs that were in the following industry areas: healthcare, industrial, residential or diversified. My shares in BPYU already covered the retail area and I knew I didn’t want to invest any more money in a retail-focused REIT. I looked at various lists of popular REITs and created my own short list. I narrowed the field by capping the current price per share for investment at $100. Since I was matching the total dollar amount already invested in my Fundrise account, I didn’t want any REITs that were too “expensive” individually. I also looked at the dividend yield percentage as I wanted to make a reasonable return from dividends. All of the REITs on my short list had a yield over 3%. I also considered the debt to EBITDA ratio, funds from operations (FFO – similar to looking at earnings per share of a publicly traded company), and the market capitalization for each REIT. To get a better understanding of each REIT, I read the company overview provided on Seeking Alpha.
Of course, if I had known that the REIT market would keep dropping so much farther, I would have held off on these purchases. In retrospect, holding off just one week would have gotten me much better deals. It was rough to watch these REITs’ share prices plummeting almost immediately after buying them. Here are the REITs I choose to buy on March 10, 2020.
- American Campus Communities, Inc. (ACC) is the largest developer, owner, and manager of high-quality student housing in the United States. I bought 3 shares of ACC at $38.50. I thought this was an interesting diversification within the residential REIT category.
- Apartment Investment and Management Company (AIV), aka AIMCO, owns and manages quality apartment communities in diverse geographical locations within the United States. I bought 3 shares of AIV at $46.80. This residential REIT was chosen because I felt their real estate strategy was similar to that of Fundrise.
- Camden Property Trust (CPT) is the final residential REIT in this list. They handle the ownership, management, development, acquisition, and construction of multifamily apartment communities. I bought 2 shares of CPT at $95.36. This REIT was selected because I felt their approach to real estate was the most similar to Fundrise of any of the REITs I looked into.
- Healthpeak Properties, Inc. (PEAK), formerly known as HCP, Inc., owns and develops real estate in the healthcare industry in the areas of life science, senior housing, and medical offices. I bought 5 shares of PEAK at $30.10. I liked the added diversification of owning this REIT and felt it might be a good defensive choice in case of recession.
- STORE Capital Corporation (STOR), which stands for single tenant operational real estate, is a fast growing net-lease REIT that operates in the service, retail, and manufacturing sectors. I bought 5 shares of STOR at $28.80. My intention was to have at least one REIT that would be comparable to the Growth eREIT in Fundrise and I felt this one fit the bill. Unfortunately, STOR shares are currently trading at a lower price now than at the time of its inception over five years ago and are at almost half of what I paid just last month!
- W. P. Carey Inc. (WPC) is another net-lease REIT, but one that has been around for 47 years. They have invested in high-quality single-tenant industrial, warehouse, office, retail, and self-storage properties in both the United States and Europe. I bought 2 shares of WPC for $75.50. I liked the idea of having a well-established diversified REIT in the mix, which I felt would be comparable to the Income eREIT in Fundrise.
Here is the screenshot that I took at the end of the trading day on March 10, 2020. The total value of my account on its first day was $1,193.39. You can see that most of the REITs had already dropped in value from when I had purchased them earlier in the day. Of course BPYU was down much further because I had bought that at the beginning of February 2019. Because I wanted to buy the other six REITs on the same day for the purpose of my experiment, I was buying at the available market price. Normally, when I invest in the stock market, I set limit orders for what I believe would be a good price at which to buy the shares, usually a little below the current price. I may let a limit order ride for a few weeks to see if it will hit before making an adjustment upward or cancelling the order. I feel like if I would have given myself a bit more leeway on buying, I would have been able to take advantage of further discounts on prices.
Experiment Details
My intention is to run this experiment for at least one year, until March 2021, though I may keep it running even longer, especially given that Fundrise is meant to be a longer term investment vehicle. I feel like the longer I track these investments, the better the quality of the comparison. I do plan on making additional equal deposits to both of the accounts. For example, I will make a deposit to E*Trade when I want to add more shares to one of the REIT positions and then I will deposit the same amount for general distribution among the REITs in my Fundrise account. If I can get authorized to make deposits directing into the Fundrise eREITs, I may go that route instead. Then I would be focusing on building those eREITs that are already in the operating stage. I will not be making large deposits to these accounts, particularly because Fundrise currently has a hold on withdrawal of funds. I plan to transfer about $50 to each account about once per month for the next year. It is less important how much or how often I increase my investments, as long as the same amount is put into the two accounts at the same time. I have set up automatic dividend reinvestment in each account.
Given the same amount of money invested, how will my Fundrise investments perform compared to the REITs I have purchased in my E*Trade account? I am attempting this experiment to satisfy my own curiosity about REITs and want to share the journey with others. I am not encouraging anyone else to invest in REITs and in fact, I recommend everyone carefully consider where they are investing their cash during these uncertain times. My question to you: which investment platform do you think will come out ahead in March 2021, Fundrise or E*Trade?
If you are unfamiliar with REITs and would like to learn more, you can find a succinct explanation of REITs on Investopedia. For nearly everything you want to know about REITs, check out reit.com. For those interested in a breakdown on what has been going on in the REIT market over the past week and what to look out for in the last week of April, read the article “Rocky Start to REIT Earnings Season” on Seeking Alpha.
Disclosure:Information shared on Squintillions is based on the author’s own experiences, thought processes, and research and is not intended as professional advice. Please do your own research before committing to any investment! If you feel your personal challenges are beyond the scope of my suggestions or other self-help materials, please seek professional counseling. Further, there are some affiliate links and ads used in this website. If you purchase an item when following these links, I may receive a commission on your purchase.