It seems that investing in real estate is the top preference of many Singaporean. You can smell it, touch it, caress it and call yourself a landlord.
Oh boy, a landlord is really cool, reminds me of the movie by Stephen Chow, Kungfu Hustle, where the landlady is overbearing and powerful. Although, secretly, she is a kungfu master. Though hilarious.
The traditional way of investing in real estate is just like how we see in the movie, own a property and then rent it out to a lot of people. Scream at people who don’t pay rent and perhaps someone will throw a knife handle in your face. Ok, going too far into the movie.
However, that is the traditional method, the cash-heavy method, which means a lot of normal folks do not have enough capital to get started.
Here comes, REITs.
What are REITs?
Watch the video or read the article, they are about the same.
REIT are Real Estate Investment Trust. REITs are a unique way that allows everyone to invest in real estates.
REIT is a special entity where a group of people comes together to invest in properties. Harnessing the power of the group, they employs a manager to handle their properties.
REIT invest in a diverse sorts of high-valued properties. REITs in Singapore owns properties such as Vivocity, Wisma Atria, Gleneagles Hospital, Marina Bay Financial Towers and so on.
With some REITs diversifying to overseas properties in Europe, China, Japan, Australia and so on.
REITs make money by buying properties and renting them out. Buying into a REIT makes you a shareholder of the REIT. Which means you are a co-owner all the properties in the REIT.
By law, to enjoy tax advantages, REITs need to distribute 90% of their rental incomes to shareholders as dividends.
What’s more? Dividends issued by REITs are tax-exempted.
REITs are listed on the stock exchanges just like any other stocks.
Making it very easy for shareholders to buy and sell their stakes in the properties.
With the power of a huge group of investors, investing in a REIT gives you access into investing in diverse high-value properties that would otherwise be out of reach of an average individual.
The properties are managed by a team of professionals, saving you the trouble of having to handle tenants and collect rent.
There are many REITs listed around the world investing in different types of properties. The crux is to select the correct REIT with a good manager.
The Problem REITs Solve for Investors
Personally, as a normal Singaporean, I too harbour the thoughts of investing in properties. As a matter of fact, I wanted to own a coffeeshop when I was a kid.
However, as I grew older, I realised that being a property investor/landlord can be quite troublesome. Tenants will damage your place, you have got to fix things they spoil, tenants will break all rules you try to enforce, tenants will pay their rent late.
That is provided you even find a tenant. Not to add in, the long list of fees and taxes subjected to a property owner.
Very clearly, I prefer REITs to traditional property ownership, and the biggest reason of all is liquidity. If I need to sell my holding for whatever urgent reasons, it can be done with a click on a button on the stock market. I can sell 36.98% of my holdings easily.
If I own a property directly, I cannot sell 36.98% of my property, I cannot sell 1 room of my property, it is either the whole or not. And it takes a long time to sell a property.
Investing in REITs
Well, there are favourite for different people, mine is towards REITs, and you do not have to agree with me. Whatever works best for you is the best.
That been said, S-REITs generally give about 6%-8% annual returns, therefore, they are great passive income instruments.
Do not invest in REITs that gives you high returns just yet. Find out how to select a good REIT first.