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  • Writer's pictureDaniel Lee

4 Reasons Why You Should Invest In REITs and Not Residential Property

Let’s talk about REITs and 4 reasons why it is a better instrument as opposed to investing in a second residential property here in Singapore.

For those who are not familiar with REITs, they are companies that own or finance income-producing real estate across a range of property sectors. By investing in a REIT, we can gain broad exposure to the physical properties that the REITs own.

1. High Liquidity

As compared to investing in physical properties, investing in REITs will be more advantageous and preferred as firstly, REITs investors retain a high degree of liquidity as we can always sell off our investment units as and when necessary. This is not possible if you own a physical property as the process of selling that property itself might take months (and also a lot more fees/costs).

2. Low Maintenance

Secondly, as the REITs are managed by property managers, the level of time and resources needed to maintain the investment is low unlike that of a physical property where the property owner will have to find the tenant and maintain the property himself/herself.

3. Low Capital Requirement

Thirdly, the capital that is necessary to participate in a single REIT or REIT index is low (usually $1,000). This allows you to participate in multiple REITs thereby allowing you to achieve maximum diversification effect without having to fork out a massive amount of capital unlike that of a physical property which will result in a high degree of concentration risk as you are fully reliant on the performance of only your second property.

4. High Levels of Diversification

Lastly, investing in REITs will provide you with better underlying exposure that is more corporate driven such as warehouse, healthcare, retail, industrial, etc. which have a better structural growth trend in the next 25 to 30 years as opposed to a second residential property which will be facing strong headwinds in the future that may severely detrimental to its long-term performances.

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If you do not know how to get started with your financial planning or if you do not have the time to manage your finances, you can consider engaging an Independent Financial Advisor who can help you make sense of the market, accelerate your progress and achieve financial freedom by 5 to 10 years earlier!

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Daniel is a Licensed Independent Financial Consultant with MAS and a Certified Financial Planner (CFP®).

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This article is meant to be the opinion of the author

This article is for information purposes only

This article should not be seen as financial advice

This advertisement has not been reviewed by the Monetary Authority of Singapore

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