--- title: "Lemons To Lemonade: Tax Loss Harvesting with REIT ETFs" description: Tax loss harvesting could be used to tactically enhance REIT allocation in a dislocated market environment while also positioning for future tax benefits image: https://blog.armadaetfs.com/hubfs/Kid%20at%20wheat%20field.jpeg --- [![armada-etf-advisors-1_web](https://blog.armadaetfs.com/hs-fs/hubfs/armada-etf-advisors-1_web.png?width=200&height=43&name=armada-etf-advisors-1_web.png)](https://www.armadaetfs.com/) - [HOME](https://www.armadaetfs.com/) - [HAUS](https://www.armadaetfs.com/haus) - [INSIGHTS](https://blog.armadaetfs.com) - [VIDEOS](https://www.armadaetfs.com/videos/) - [TEAM](https://www.armadaetfs.com/team/) - [CONTACT](https://www.armadaetfs.com/contact) Residential REITs # Lemons To Lemonade: Tax Loss Harvesting with REIT ETFs Tax loss harvesting could be used to tactically enhance REIT allocation in a dislocated market environment while also positioning for future tax benefits [Al Otero](https://blog.armadaetfs.com/author/al-otero) Jul 1, 2022 --- ### ![Kid at wheat field](https://blog.armadaetfs.com/hs-fs/hubfs/Kid%20at%20wheat%20field.jpeg?width=1000&name=Kid%20at%20wheat%20field.jpeg) ### **Tactically Enhancing REIT Allocation** With 2022 shaping up to be an extremely challenging year for investors across the risk spectrum from stocks to bonds, to crypto, we would like to reacquaint readers with the concept of tax loss harvesting and how the strategy could potentially be used to tactically enhance their REIT allocation in a dislocated market environment while also positioning for future tax benefits. ### **The Strategy Behind Tax Loss Harvesting**   Tax-loss harvesting is selling stocks, bonds, mutual funds, ETFs, or other investments in taxable accounts that have lost value since purchased to offset realized gains elsewhere in your portfolio. An unrealized gain/loss is the difference between the current market price of a position you currently hold and the original purchase price (cost basis). A realized gain/loss is the difference between the price at which a position was sold and its cost basis. Should you wish to maintain the characteristics provided by the investments you are considering selling for tax-loss harvesting purposes, they can be replaced with similar, but not substantially identical, securities in order to maintain a similar risk/return profile. \[1\]   ### **The “Wash Sale” Rule**   The U.S. federal government allows investors to use capital losses to offset capital gains in the current tax year or carry the loss forward into future years, where losses can be kept in perpetuity. After realizing losses, investors may want to reinvest proceeds to maintain their desired exposure or asset allocation. To ensure that investors don’t get a tax break and then instantly buy back their original investment, the government has what’s known as the “wash sale” rule. The rule mandates that an investor cannot claim a loss on the sale of an investment and then buy a “substantially identical” security for the period beginning 30 days before and ending 30 days after the sale. \[2\]   ### **Federal Reserve Forced To Raise Interest Rates**   The year-to-date (YTD) correction in equity markets has crossed over into “bear market” territory implying losses of 20% or greater for many major indexes. The concerns that precipitated the most recent selling pressure revolve around unabated inflation which is showing no sign of moderation and is forcing the Federal Reserve to shift to a more aggressive policy for raising interest rates in hopes of stabilizing prices. We believe this more aggressive strategy raises the risk of recession in 2023 and beyond.     ### **Residential Sectors Poised For Outperformance**   The REIT sector is not immune from stock market corrections as it is itself in a bear market for 2022, experiencing total returns approaching –24%.  The selling in REIT shares has been broad-based with office and industrial sub-sectors down approximately –30% YTD and regional malls down closer to –40%. The residential sectors including apartments, manufactured housing and single-family housing are all down roughly –23.5%. \[3\] In considering the fundamental outlook for the various property sectors and given the consensus view that the economy will slow from here (or worse enter a recession over the coming year) we believe that residential sectors are uniquely positioned for outperformance on an absolute and relative basis versus other property types. The defensive characteristics of residential real estate should provide a buffer to landlords in an environment in which house price appreciation slows or even retraces some recent gains. Resident turnover has been low and would likely remain low if the economy slows. Landlords are also positioned to benefit from in place rents which are 10-15% below current market rents, thus providing material growth in portfolio-level rents even if market rents stay constant. By way of example, Equity Residential (EQR), the large and diversified apartment REIT which owns 80,500 units across 12 U.S. markets recently reported a loss to lease of 13.5%, creating a runway for rental revenue increases over the next year.\[4\]   ### **Other Major Property Sectors Hindered By Economic Slowdown**   Finally, supply shortages across all forms of housing make it more likely that margins can be maintained and supportive of earnings and dividend growth. We believe other property sectors are not as well positioned and the economic slowdown is already leading to signs of overcapacity for major property sectors such as industrial, office and retail.     ### **REIT ETFs Primed For Tactical Pivot**   Putting the apartment sector outlook into the context of large, diversified and passively managed REIT ETFs with constituent holdings in excess of 150 names and track diversified benchmarks, but with only limited exposure to the residential sector and material exposure collectively to industrial, retail and office raises the question of whether now might be a good time for a tactical pivot to an ETF such as the Home Appreciation U.S. REIT ETF (HAUS), which provides 100% exposure to the residential sector, is actively managed and contains a curated portfolio of 26 names.     ### **Stock Market Correction Provides Opportunities**   The large, diversified and passive REIT ETFs are a cost-effective way for individuals and institutions to gain broad exposure to the REIT asset class which has proven to be a strong performer and diversifier over the years. 5 However, we believe that the recent stock market correction presents an opportunity to take a more tactical (and potentially tax efficient) approach to the industry with at least a partial pivot from a broadly diversified REIT ETF to one with pureplay exposure to the residential sector.    **Footnotes:**     \[1\] [www.fidelity.com/viewpoints/active-investor/tax-loss](http://www.fidelity.com/viewpoints/active-investor/tax-loss) harvesting-using-ETFs   \[2\] Blackrock: Tax Loss Harvesting At A Glance   \[3\] FTSE NAREIT performance June 17, 2022   \[4\] Seeking Alpha: Philip Eric Jones; June 16, 2022; Equity Residential (EQR) - Almost Recovered From Covid   \[5\] Armada ETFs (HAUS) – Investment Case    *Opinions expressed are subject to change at any time, are not guaranteed and should not be considered investment advice.*    *Armada does not provide tax, legal or retirement advice. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.*     ***Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about the Fund, please call (800) 693- 8288 or visit our website at*** [***www.armadaetfs.com***](https://usc-word-edit.officeapps.live.com/we/www.armadaetfs.com)***. Read the prospectus or summary prospectus carefully before investing.***   *Investments involve risk. Principal loss is possible*   *Distributed by Foreside Fund Services, LLC.*    [Residential REITs](https://blog.armadaetfs.com/tag/residential-reits) ## Similar posts Small Caps ### [Can Small Caps Lead to Big Growth and Good Value?](https://blog.armadaetfs.com/can-small-caps-lead-to-big-growth-and-good-value) Small cap names in the residential world produced exceedingly strong results in Q1, putting forth outlooks for coming quarters that are highly... Al Otero May 26, 2022 REIT ### [3Q Earnings Season...A Path to Normalization](https://blog.armadaetfs.com/3q-earnings-season...a-path-to-normalization) We believe that the rental housing segment of the REIT market will live up to its reputation for providing investors with safe and predictable cash... Al Otero Oct 28, 2022 REIT ### [Single Family Rental - Earnings Deep-dive](https://blog.armadaetfs.com/single-family-rental-earnings-deep-dive) The much-discussed housing shortage playing out across the US is also a key reason for historically low levels of resident turnover within SFR... Al Otero Apr 4, 2022 ### Sign Up For Armada ETF Email Updates, Delivered Straight To Your Inbox. [![armada-etf-advisors-1_web](https://blog.armadaetfs.com/hubfs/armada-etf-advisors-1_web.png)](https://www.armadaetfs.com) © ARMADA ETF ADVISORS ALL RIGHTS RESERVED. ### Contact Us - [contact@armadaetfs.com](mailto:contact@armadaetfs.com) - [(800) 693-8288](tel:8006938288) ***Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about the Fund, please call [(800) 693-8288](tel:8006938288) or visit our website at **[www.armadaetfs.com](http://www.armadaetfs.com/)**. Read the **[prospectus](https://www.armadaetfs.com/haus/prospectus)** or **[summary prospectus](https://www.armadaetfs.com/haus/summary-prospectus)** carefully before investing.*** Investments involve risk. Principal loss is possible. Unlike mutual funds, ETFs may trade at a premium or discount to their net asset value. Brokerage commissions may apply and would reduce returns. The fund is new and has limited operating history to judge. **Risks of Investing in the Funds:** The Funds are classified as non-diversified investment companies. The Funds may invest a greater portion of assets in the securities of a single issuer or a smaller number of issuers than if they were diversified funds. To the extent that either Fund invests in other funds, a shareholder will bear two layers of asset-based expenses, which could reduce returns compared to a direct investment in the underlying funds. Through investments in REITs, the Funds are subject to the risks of investing in the real estate market, including decreases in property revenues, increases in interest rates, increases in property taxes and operating expenses, legal and regulatory changes, a lack of credit or capital, defaults by borrowers or tenants, environmental problems, and natural disasters. The Fund smay invest in derivatives, which are often more volatile than other investments and may magnify the Funds’ gains or losses. The HAUS Fund may invest in debt securities which are subject to the risks of an issuer’s inability to meet its obligations under the security; failure of an issuer or borrower to pay principal and interest when due; and interest rate changes affect the prices of fixed income securities. In addition, an increase in prevailing interest rates typically causes the value of existing fixed income securities to fall and often has a greater impact on longer duration and/or higher quality fixed income securities. The PRVT Fund invests in mortgage-backed securities (MBS), which are subject to the risks generally associated with fixed-income securities and mortgage-backed securities. Delinquencies and defaults by borrowers in payments on the underlying mortgages, and the related losses, are affected by general economic conditions, the borrower's equity in the mortgaged property, and the borrower's financial circumstances. In addition, an increase in prevailing interest rates typically causes the value of existing fixed income securities to fall and often has a greater impact on longer duration and/or higher quality fixed income securities. Unlike typical exchange-traded funds, there are no indexes that the Funds attempt to track or replicate. Thus, the ability of the Funds to achieve their respective objective will depend on the effectiveness of the portfolio manager. In general, ETFs can be tax efficient. ETFs are subject to capital gains tax and taxation of dividend income. However, ETFs are structured in such a manner that taxes are generally minimized for the holder of the ETF. An ETF manager accommodates investment inflows and outflows by creating or redeeming “creation units,” which are baskets of assets. As a result, the investor usually is not exposed to capital gains on any individual security in the underlying portfolio. However, capital gains tax may be incurred by the investor after the ETF is sold. The Fund is recently organized, giving prospective investors a limited track record on which to base their investment decision. Investment Objective: The Home Appreciation U.S. REIT ETF (HAUS) seeks total return. For current holdings and performance click [here](https://www.armadaetfs.com/haus/). Investment Objective: The Private Real Estate Strategy via Liquid REITs ETF (PRVT) seeks total return. For current holdings and performance click [here](http://www.armadaetfs.com/prvt/). Distributed by Foreside Fund Services, LLC. Foreside is not affiliated with Armada ETF Advisors, Tidal ETF Services or Thryve Communications. Launch & Structure Partner: Tidal ETF Services. Website by Thryve Communications. © 2021 Kalungi, Inc. - All Rights Reserved. [Powered by Atlas - a B2B SaaS HubSpot theme](https://www.kalungi.com/atlas-hubspot-theme-for-b2b-saas-software)