Most investors are attracted by the high yield and passive income REITs offer. However, there are 3 important points to take note of when investing in REITs.
(1) It is never wrong to buy real estate at a discount (i.e., under value) in theory. However, beware of the value trap because some of the REITs are always traded below its book value due to inherent risks. There is no such thing as free lunch in the investing world. A cheap investment may not be a good investment as the stock market is efficient and adjusts to the true value very fast. The smart money always buys up cheap and good REITs when there is an opportunity before the retail investors even have a chance to spot them.
(2) REITs use debt and/or equity financing to raise funds to acquire properties, collect rental from the tenants and pay 90% of the net property income back to unit holders. As such, it is very common for REITs to issue additional shares (i.e., to the existing unit holders or to private investors to raise capital). Most of the time, the rights issues are offered at a discount to the market price and immediately, the existing shareholders will suffer a capital loss if they are unable to fork out additional funds to subscribe to the rights.
(3) High return is always associated with higher risk when it comes to investing. Similarly, some REITs offer very attractive distribution yield – up to 7-9% – but one must make sure they fully understand the risks in them. Most retail investors are solely relying on the distribution yield as the selection criterion when it comes to REIT selection.
Investing is all about risk management; it is very important to understand all the risks before putting your hard-earned money into REITs for your retirement. Retirees cannot afford to make mistakes when it comes to investing. Get professional help in building your REIT portfolio for your retirement and learn how to invest wisely to enjoy greater diversification and higher returns.
Important: The information and opinions in this article are for general information purposes only. They should not be relied on as professional financial advice. Readers should seek independent financial advice that is customised to their specific financial objectives, situations & needs. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
Kenny Loh is a distinguished Wealth Advisory Director with a specialization in holistic investment planning and estate management. He excels in assisting clients to grow their investment capital and establish passive income streams for retirement. Kenny also facilitates tax-efficient portfolio transfers to beneficiaries, ensuring tax-efficient capital appreciation through risk mitigation approaches and optimized wealth transfer through strategic asset structuring.
In addition to his advisory role, Kenny is an esteemed SGX Academy trainer specializing in S-REIT investing and regularly shares his insights on MoneyFM 89.3. He holds the titles of Certified Estate & Legacy Planning Consultant and CERTIFIED FINANCIAL PLANNER (CFP).
With over a decade of experience in holistic estate planning, Kenny employs a unique “3-in-1 Will, LPA, and Standby Trust” solution to address clients’ social considerations, legal obligations, emotional needs, and family harmony. He holds double master’s degrees in Business Administration and Electrical Engineering, and is an Associate Estate Planning Practitioner (AEPP), a designation jointly awarded by The Society of Will Writers & Estate Planning Practitioners (SWWEPP) of the United Kingdom and Estate Planning Practitioner Limited (EPPL), the accreditation body for Asia.
