I get requested a lot of questions on particular investments. Principally, the query is asking me to look into my crystal ball and inform them what is going to present the perfect return over their funding interval. Except for the truth that I am not licensed to advocate particular investments (or paid to take action; even for our actual property sponsors, we solely introduce, not advocate), the principle subject right here is that my crystal ball is often about as cloudy as that of the individual asking the query.
Nonetheless, I get this explicit model of the query typically sufficient that it appeared value a weblog put up.
“I apply in a tutorial setting and, like many people at educational establishments, I’ve entry to TIAA’s Actual Property Account. I’ve not been capable of finding any high-quality evaluations of this account to assist determine whether it is value investing in, and I used to be questioning in case your workforce can be up for writing an article about it to supply us along with your perception. Some questions that come to thoughts are whether or not it’s a good funding in comparison with different direct actual property investing alternatives, if TIAA is taken into account aggressive as an investing establishment in the actual property world, and if the advantages of having the ability to spend money on it in a 403(b) outweigh the tax advantages actual property investments provide buyers in taxable accounts.”
The TIAA Actual Property Fund (QREARX)
I’ve identified concerning the TIAA Actual Property Account (fund) for many years, though I admit I do not comply with it significantly intently, because it has by no means been accessible to me as an funding. TIAA-CREF gives a variety of 403(b)s throughout the nation to teachers, academics, and others, and it’s typically thought of one of many higher retirement account suppliers—or not less than it was a decade or two in the past earlier than investing grew to become just about free with the appearance of sub-10 foundation level index funds from suppliers like Vanguard, Constancy, Blackrock, and extra.
The draw of the TIAA fund is that it gives DIRECT investments into actual property, reasonably than simply shopping for shares of publicly traded REITs. Meaning there’s one much less layer between you and the precise funding. Presumably, that would cut back prices and cut back volatility and correlation with the general inventory market, like different direct actual property investments. After all, one can very fairly argue that the volatility of personal actual property is not lowered; it is simply hidden resulting from belongings not being marked to market usually. Presumably, QREARX does need to mark to market extra usually than most direct investments, given its excessive liquidity.
Previous Efficiency
Once I first discovered about this fund twenty years in the past, I heard individuals communicate positively about it and assumed it was fairly good, however then I forgot about it as a result of I by no means had a 403(b) with entry to it. Think about my shock once I appeared it up and discovered that possibly it wasn’t all that superior. Check out this chart from Morningstar accessed in Might 2025.
The highest line is fund efficiency, and the third line is the efficiency of its class. See what I imply? Ten-year returns of three% and even 15-year returns of 6% are fairly onerous to get enthusiastic about. Actual property hasn’t achieved in addition to US massive cap tech shares during the last 15 years, however it hasn’t been a nasty asset class during which to speculate. Let’s evaluate it to my most well-liked publicly traded actual property funding, the Vanguard Actual Property Index fund (VNQ). This fund/ETF owns all of the fairness Actual Property Funding Trusts (REITs) traded on US markets.
That 1.5% decrease per 12 months (15-year returns of seven.73% vs. 6.20%) is not as dangerous as I anticipated, however it’s nonetheless a considerable underperformance. It appears even worse during the last 5 years with an underperformance of 6.5% a 12 months. It actually makes you surprise what has been occurring at QREARX within the final 5 years. Like non-public actual property investments, QREARX is not marked to market as shortly as VNQ. I am not shocked to see the delay within the poor returns, simply as we noticed with MANY non-public actual property investments that had tough years in 2023 and 2024, particularly when in comparison with the general inventory market.
QREARX
VNQ
What Is the TIAA Actual Property Account Truly Doing?
For those who learn its paperwork, you’ll be able to be taught lots about how an account/fund/annuity/no matter really operates. Let me quote from it:
“The Actual Property Account is designed as an possibility for retirement and tax-deferred financial savings plans for workers of non-profit and governmental establishments.
Funding Goal: The Actual Property Account seeks to generate favorable complete returns primarily via the rental revenue and appreciation of a diversified portfolio of straight held, non-public actual property investments and actual estate-related investments, whereas providing buyers assured, day by day liquidity.
Funding Technique: Actual Property-Associated Investments. The Account intends to have between 75% and 85% of its web belongings invested straight in actual property or actual estate-related investments with the objective of manufacturing favorable long-term returns primarily via rental revenue and appreciation. These investments could encompass:
- Direct possession pursuits in home and international actual property;
- Direct possession of actual property via pursuits in joint ventures; or
- Oblique pursuits in actual property via actual estate-related securities, reminiscent of:
- Personal actual property restricted partnerships and restricted legal responsibility corporations (collectively, “actual property funds”);
- Actual property working companies;
- Investments in fairness or debt securities of home and international corporations whose operations contain actual property (i.e., that primarily personal, develop, or handle actual property) which will not be actual property funding trusts (“REITs”);
- Home or international loans, together with typical business mortgage loans, taking part mortgage loans, secured home and international (together with UK) mezzanine loans, subordinated loans, and collateralized mortgage obligations, together with business mortgage-backed securities (“CMBS”), collateralized mortgage obligations (“CMOs”), and different related investments; and
- Public and/or privately positioned, home and international, registered and unregistered fairness investments in REITs, which investments could encompass registered or unregistered frequent or most well-liked inventory pursuits.
The Account’s principal technique is to buy direct possession pursuits in income-producing actual property, together with the 4 major sectors of workplace, industrial, retail, and multi-family, and different actual property sectors (outlined as actual property outdoors of the 4 major sectors famous above). As well as, the Account is permitted to carry as much as 25% of its web belongings in liquid actual estate-related securities, together with publicly traded REITs and CMBS. Administration intends that the Account won’t maintain greater than 10% of web belongings in such securities on a long-term foundation. As of December 31, 2024, the Account didn’t maintain any publicly traded REITs or CMBS.”
The doc additionally notes that 15%-25% of the fund’s cash might be invested in liquid securities like Treasury bonds and cash market funds.
Extra data right here:
Learn how to Begin Investing in Actual Property
The Tax-Advantaged Earnings from Our Passive Actual Property Investments
What Are the Execs of Investing in QREARX?
I am positive loads of individuals love investing in QREARX. It has $22.6 billion in it. Let’s think about what they most likely like.
#1 Simply Invested in with a Retirement Account
The primary professional of QREARX is that it gives you with a strategy to spend money on actual property in your TIAA-CREF 403(b). You may take pleasure in some tax effectivity from having your actual property funding in a retirement account. And if an enormous chunk of your cash is on this account, it might be the one strategy to have a considerable actual property funding in your portfolio.
#2 Much less Volatility (Much less Cash in Publicly Traded REITs)
The second professional of QREARX is that it permits you to make investments extra straight in actual property than by way of a REIT mutual fund, reminiscent of VNQ. That doubtless leads to much less volatility. After all, that works each methods. In 2021, VNQ was up 41%, however QREARX was solely up 18%. On the draw back, VNQ dropped 26% in 2022, and QREARX solely dropped 17% throughout 2023-2024. All else equal, decrease volatility is nice.
#3 Liquidity
QREARX gives day by day liquidity, like a typical mutual fund. That is very completely different from most direct actual property investments, that are typically non-public and provide a lot much less liquidity. Nonetheless, it does restrict you to transacting as soon as 1 / 4 (presumably to stop market timing) on the day of your alternative.
#4 Stability
This account has solely been round since 1995, however frankly, that is an eternity within the non-public actual property house. Few syndicators and personal fund managers have been in enterprise wherever close to that lengthy (weblog sponsor MLG is a notable exception). And TIAA itself has been round for greater than a century (1918). Like investing in VNQ, you do not have to spend so much of time worrying about being the sufferer of a rip-off right here or TIAA going bankrupt. That is typically not the case within the non-public actual property world.
#5 Simple Taxes
This funding is in your 403(b), so there’s zero tax preparation required for it. That is positively NOT the case for a portfolio of syndications or funds sending you multi-state Ok-1s or having to file a number of Schedule Es annually on your direct actual property investments.
#6 Very Passive
VNQ is simply as passive as QREARX, and lots of non-public funds are equally passive, not less than after the preliminary due diligence. However a lot of actual property takes a complete lot extra work than that.
What Are the Cons of Investing in QREARX?
Like several funding, there are professionals AND cons. QREARX isn’t any completely different. However the cons rely in your comparability. You need to spend money on SOMETHING. Though all actual property is elective, it appeared most affordable to match it to the opposite actual property investments sometimes utilized by white coat buyers reasonably than shares, bonds, or another asset class. These embody public REITs by way of one thing like VNQ, passive non-public syndications and funds just like these on our actual property sponsor record, and actually direct possession of income-producing rental property (aka landlording) like we train in our No Hype Actual Property Funding on-line course.
#1 Extra Costly Than VNQ
Investing in VNQ, like most Vanguard index funds, is terribly near free. The expense ratio is 0.13%. That is not the 0-5 foundation factors you see on a complete inventory market fund nowadays, however it’s nonetheless a complete lot nearer to free than most funds cost. Alternatively, QREARX costs kind of the traditional “1% a 12 months.” The truth is, it is barely extra at 1.015% a 12 months. These charges/bills have to return out of your returns. There is no such thing as a different place to take them from.
Price comparability with non-public passive investments is much more difficult. At first look, they appear lots larger—typically one thing like 1% plus 20% of returns above 8% or so. However you must remember the fact that a few of these charges are sometimes going to the bills of operating the funding itself. These bills aren’t included within the ER of VNQ. It is not fully clear how working bills present up with QREARX. Some non-public investments (just like the DLP funds) do not cost you any charges till you have acquired your most well-liked return. QREARX is not providing something like that.
#2 Unexciting Returns
I am unsure how else to explain the final decade or two of returns for the TIAA Actual Property Account. They’re clearly decrease than these offered by the much more liquid and considerably cheaper VNQ. In addition they appear to be fairly a bit decrease than the returns provided by most passive non-public actual property investments. Let’s evaluate a considerably related funding, the DLP Housing Fund. This fund is not as liquid, though it does provide extra liquidity (annual redemptions) than most non-public actual property investments. It’s, like QREARX, evergreen—additionally in contrast to most actual property investments. How has it been doing the previous few years? Let’s have a look.
Sadly, Morningstar would not make a pleasant little graph on daily basis for personal actual property investments, however I rigorously monitor my very own returns in all of those investments. I invested $250,000 on this fund in June 2021 and have an annualized return from then till the top of April 2025 of 13% a 12 months. By 12 months, the returns seem like this:
- 2021 (Jun-Dec): 6.69%
- 2022: 18.93%
- 2023: 12.57%
- 2024: 9.97%
- 2025 (Jan-Apr): 4.68%
Evidently, 13% is method higher than no matter QREARX has achieved over that point interval—maybe by as a lot as 11%-12% a 12 months. They’re each actively managed actual property funds and previous efficiency would not essentially point out future efficiency, however you do need to ask your self how a lot you belief the QREARX supervisor to do higher after an underperformance like that.
Even when I had simply gone with VNQ, I would be considerably forward of QREARX.
I might have taken much less threat, too, and achieved higher. Actual property debt funds have carried out simply tremendous during the last 5 years. We personal three of them (together with the DLP Lending Fund), and our returns for that asset class are a really steady 9.56% per 12 months since we began investing in it in 2017.
Now, not each non-public actual property turned in higher efficiency than QREARX, however most of mine did. Whereas it isn’t essentially an indicator of future efficiency, low returns could also be my greatest con concerning the TIAA Actual Property Account.
#3 Unavailability
QREARX could also be out there to you. However it’s not out there to me or most white coat buyers—not less than not with out altering jobs or not less than opening an IRA with TIAA-CREF. You’ll be able to most likely solely put as a lot cash in it as you will have in your TIAA 403(b). In contrast to a non-public fairness actual property funding, you’ll be able to’t put it in a taxable account and revel in passive revenue sheltered by depreciation. And in case you use your 403(b) house for actual property, meaning you’ll be able to’t put one thing else (bonds?) in there.
Extra data right here:
How the IRS Treats You as a Actual Property Investor
The 60+ Worst Errors You Can Make in Actual Property Investing
The Backside Line
Whereas I discover the idea of a liquid direct actual property funding out there to non-accredited buyers of their employer-provided retirement accounts very attention-grabbing, it is onerous for me to recover from the extra bills and decrease returns seen with QREARX. And in case you’re actually all for placing in some effort and time into actual property investing, you are most likely not going to finish up on this fund.
Desirous about exploring non-public actual property investing? Ensure that to enroll in the free White Coat Investor Actual Property E-newsletter that gives you necessary ideas for investing on this worthwhile asset class whereas additionally alerting you to new alternatives. Ensure that to begin your due diligence with those that help The White Coat Investor web site:
Featured Actual Property Companions
Goodman Capital
Sort of Providing:
Fund / REIT
Major Focus:
Single Household / Multi-Household
Minimal Funding:
$100,000
Yr Based:
1987
DLP Capital
Sort of Providing:
Fund
Major Focus:
Multi-Household
Minimal Funding:
$100,000
Yr Based:
2006
Southern Impression Houses
Sort of Providing:
Turnkey
Major Focus:
Single Household / Multi-Household
Minimal Funding:
$80,000
Yr Based:
2017
MLG Capital
Sort of Providing:
Fund
Major Focus:
Multi-Household
Minimal Funding:
$50,000
Yr Based:
1987
Mortar Group
Sort of Providing:
Syndication
Major Focus:
Multi-Household
Minimal Funding:
$50,000
Yr Based:
2001
EquityMultiple
Sort of Providing:
Platform
Major Focus:
Multi-Household / Business
Minimal Funding:
$5,000
Yr Based:
2015
Black Swan Actual Property
Sort of Providing:
Fund
Major Focus:
Multi-Household
Minimal Funding:
$25,000
Yr Based:
2011
* Please think about this an introduction to those corporations and never a suggestion. You must do your personal due diligence on any funding earlier than investing. Most of those alternatives require accredited investor standing.
What do you suppose? Do you spend money on the TIAA Actual Property Account? Why or why not? What do you want/dislike about it?
