When your life is joined with another person through marriage you sometimes meet a fork in the road. One person wants to go left and the other, right. An important aspect of marriage is choosing the same path. Choosing to invest in physical real estate or a REIT is one of those critical decisions our marriage has faced.
My wife (Kayla) and I balance each other out extremely well. I’m the one with lofty dreams and act on ideas far before they should be acted upon. Kayla, on the other hand, is a planner. She has every day planned out far into the future. She makes decisions based on her gut. The majority of my decisions are based on data. Neither one is better than the other and it makes for a well balanced investing philosophy.
I have spent several years learning about real estate and how to invest in it. The one thing that kept me from buying a rental property was a lack of capital and reluctance from my wife.
Once we had the capital, we elected to invest in Real Estate Investment Trusts (REITs) rather than physical real estate.
This is an anecdotal look at our investment decision, read this if you want a full comparison of REITs ve Physical Real Estate.
My In-Laws Owned Rentals
Kayla and I started dating in high school. They didn’t have any rentals at the time we started dating, but I remember hearing about their experience positive and negative.
My father in law was the property manager. He’s much more of a handyman than I am and is competent with electricity, plumbing, and general repairs.
Her little brother was the landscaper and together they managed two rentals while she was young.
The market was different back then, houses were “affordable” and it made a lot more sense to turn primary residences into rentals rather than selling them.
They ultimately sold off their rentals to buy their dream home.
While I don’t know their financials specifically, I can imagine that a large portion of their home was paid for by the rentals they had sold.
During the time they held the rentals, our market went on a tear. It’s still on a tear. We owned our house for 20 months and sold it for a 20% increase.
My Wife’s Perspective
Kayla grew up seeing their rentals as a burden for whatever reason. She has always been turned off by the idea based on her experience growing up with rentals in the family.
This is important for me to recognize. No matter what I do or say, she’s going to have a deep-seated reluctance to get into the physical real estate market.
Maybe it’s the perception that it’s another job and would take time from the family. Maybe it’s because she doesn’t want to deal with strangers and tenants owing us money. Whatever the reason, it’s important to recognize this.
To me, physical real estate is a great way to diversify away from stocks and invest in an income-producing asset. I like the idea of a challenge and would even welcome doing it full-time.
I understand that leveraging a property management company can take away a lot of the burden that comes with owning rental properties. I also understand that rental income and equity appreciation is a powerful way to build wealth.
Being self-aware is extremely beneficial to a marriage. Being self-aware of your marriage is just as important.
What is your marriage good at accomplishing? What does it struggle with?
I understand that my personality flaws include being unorganized, quick to action (impulsivity), and extreme optimism. This tends me to get out over my skis from time to time and requires Kayla to reel me back in.
Our marriage is really good at accomplishing long-term goals and generating income. Those two things have been a strength of our marriage. We’re grinders, we follow through and we’re honest with ourselves.
Our marriage is not so good at dealing with financial stress, time-apart, and putting down roots.
Based on what we understand about ourselves and our marriage, we determined REITs to be the best way for us to invest in the real estate market.
Benefits of REIT Investing
There are many benefits to investing in REITs. Aside from historically outperforming physical real estate, we found many other important benefits.
Benefits of REITs
Low barrier to entry
Return on investment
Access to commercial & residential
No geographic restrictions
No property management
No evictions or squatters
Because REITs are considered “pass-through” entities, the fund is required to payout at least 90% of it’s income to shareholders. Typically, this leads to higher yields compared to other fixed-income assets.
REITs are also less volatile than stocks as they track a broader slice of the real estate market. It provides a smoother ride while still historically returning double-digit yields.
Here’s a full breakdown of REITs vs Physical Real Estate.
Ultimately, we made a decision that best fits our marriage. We began investing in VNQ (Vanguard Real Estate ETF).
This investment checks all of our boxes and has been one of the more exciting assets we’ve invested in. It’s extremely flexible and poses almost no risk other than total market risk.
Through VNQ we have exposure to commercial real estate and residential real estate without having to do anything. It’s extremely passive. This is perfect for our family.
I’m so glad we went this route over physical real estate. Especially now that we’re geoarbitraging from Washington to Texas.
Owning real estate while trying to move across the country would have been so stressful for our marriage. We’ve never wanted to live in the same place forever and owning physical real estate across the country would definitely keep me up at night.
Kayla and I have different upbringings and different risk tolerances, but we’re able to find common ground. That is so important in a marriage, especially when it comes to finances. It is “our money” after all.
It’s no secret that we combine our finances for the betterment of our kids. I’m not saying you have to do the same, it just works best for us.
Taking an investment goal and realizing there are many ways to achieve it gave us the freedom to explore all of our options. We ultimately compromise on an investment strategy that checks all of our boxes.