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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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
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