Does REIT exposure count as real estate exposure when I'm still trying to buy actual property

Question

Trying to work out how to think about this as someone still in the saving phase. I have about 34k set aside toward a down payment on a small multifamily, probably a duplex or triplex in the Cleveland or Akron metro, and the timeline is somewhere between 18 and 30 months depending on how prices move. My broker account has been sitting mostly in a broad index fund and I keep looking at the REIT options and wondering if putting some of that 34k into a diversified equity REIT fund would count as getting into real estate or whether it is basically just another equity position with a real estate label on it. The reason it matters to me is that part of my thinking with the duplex is to start building some familiarity with how real estate performs, not just returns on paper. If the REIT exposure teaches me nothing about what it feels like to own property, to deal with vacancy or rent growth in a specific market, then I am not sure it is doing the job I want it to do even if the returns are fine. The other side of it is that 34k sitting mostly flat for another 18 months is also not doing a great job. So I am caught between using that capital productively and not wanting to confuse two things that are probably pretty different in practice.

kenji_ito44 · Answer

REITs taught me nothing about what a bad tenant costs you at 11pm on a Friday.

nataliehsu · Answer

The 34k is your closing buffer too, not just a down payment, and Cleveland inspections alone ran me $600 last year.

rbhatia88 · Answer

REITs are equity, full stop. The correlation to the S&P during stress periods proves it, and March 2020 is the obvious example where equity REITs dropped 40% right alongside everything else. I had gap capital sitting in a REIT ETF in early 2020 thinking I was being clever, and it was down 38% exactly when I needed dry powder to move on a deal in Indianapolis.

On the learning side, nothing in a REIT position will teach you what a Cleveland duplex vacancy actually costs you. That is a $900/month unit sitting empty for three months while you are still carrying the mortgage, which is a very different feeling than watching a fund NAV tick down.

Keep the 34k boring and liquid, and do the education work separately by walking deals in the Akron market now, even ones you cannot buy yet.

Does REIT exposure count as real estate exposure when I'm still trying to buy actual property

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