Guidant Financial Group Blog

Word on the street (Wall Street, that is) is that REITs may finally be seeing some increase in value. This is good news because anything real-estate related seeing some kind of increase could be a sign that the US economy is stabilizing.

In a recent article by the Wall Street Journal (see REITs: Better but Not All-Clear), REITs were highlighted as an investment opportunity on the rise. In fact, the Dow Jones All REIT index, has doubled since last spring. That being said, though, the very same index lost 75% of its value between February 2007 and March 2009.

The interesting thing about this article, to us, is how much talk there is about the premiums put on REITs for speculation. The reason many people come to Guidant to explore a self-directed IRA for real estate investing is because the speculation is largely taken out of the equation.

Don’t get us wrong, there will always be some sort of speculation and calculation involved in any kind of investment, but the fact that this article has to point out that “REITs now trade at a roughly 20% premium to the net value of their real estate,” makes us want to roll our eyes. Several times.

What does that even mean? 20% premium for what?

According to the article, it’s a premium for optimism; Optimism that the commercial market is on an upturn.

Would you like to pay a premium for optimism?

Maybe, but we’ll bet that you’d rather pay a premium for real returns. It’s exciting that there’s a positive rumble around REITs – because that means that there’s a positive rumble around real estate. But, for our self-directed IRA clients who invest in real property, this is even more exciting. For them, this rumble really can become a reality.