The email address in "Contact AK: Ads and more" above will vanish from November 2018.

FAKE ASSI AK71 IN HWZ.

Featured blog.

1M50 CPF millionaire in 2021!

Ever since the CPFB introduced a colorful pie chart of our CPF savings a few years ago, I would look forward to mine every year like a teena...

Past blog posts now load week by week. The old style created a problem for some as the system would load 50 blog posts each time. Hope the new style is better. Search archives in box below.

Archives

"E-book" by AK

Second "e-book".

Another free "e-book".

4th free "e-book".

Pageviews since Dec'09

Recent Comments

ASSI's Guest bloggers

Why AK invests in REITs?

Friday, March 18, 2022

Quite a few recent comments were about REITs.

So, a blog on why I invest in REITs is probably a good idea.

Some people are worried that impending rising interest rates will mean REITs doing poorly.

After all, REITs are all leveraged to some degree and higher interest rates will surely burden REITs.

However, compared to us directly investing in a property, REITs are probably more conservative when it comes to borrowing money with allowed gearing capped at 50%.

We are allowed a higher gearing level in the purchase of a property, in comparison, with 70% or 80% LTV being the norm.

Of course, property valuation has to be trustworthy but that is another topic.

If you are interested, maybe, read this blog:




So, if we are worried about rising interest rates and REITs doing poorly, we should also be worried about investing in real estate in general.

I very much prefer investing in REITs because:

1. I do not want to take on more debt.

2. I do not want concentration risk.

3. I do not want to deal with tenants.




Regular readers know I do not borrow money to invest in stocks.

I know some will argue that some debt is not a bad thing and I agree because a judicious amount of debt can make good decisions deliver better results.

Of course, the opposite is also true as debt will magnify the damage resulting from bad decisions.

There is no telling when a seemingly good decision could turn bad and I do not want to take the chance especially in retirement.

In fact, investing in REITs already exposes us to debt since REITs are leveraged.

I just don't want to take on more debt on a personal level and like I said, REITs are relatively conservative when it comes to leverage which helps to give me peace of mind.

See:




Unless we are very rich, it is unlikely that we can buy more than one or, maybe, two properties on our own steam.

This creates concentration risk and if we should end up buying a property which is hard to rent out or resell, we could be in trouble.

The truth is that most of us are not experts when it comes to real estate investment and we usually rely on "experts."

Concentration risk also includes counter party risk.

So, even if we should rent out our property, if the tenant stops paying rent for some reason, rental income goes to zero.

When we invest in REITs, we invest in a bigger number of buildings and we are collecting rent from a larger number of tenants.

and
Condo investment has been a drag!



REITs are professionally managed.

I don't have to look for tenants.

I don't have to deal with their demands or complaints.

I don't have to deal with the upkeep of the properties.

The only thing I have to do is to check my bank account once every quarter to make sure these REITs pay me a share of the rental income.






I should also mention that it is rarely possible to buy properties at a discount to their valuation.

Properties are rarely mispriced like some were in the USA  during the early days of the Global Financial Crisis.

However, it is often possible to buy REITs at a discount to their NAV and a relatively big discount at times.

If we look at my largest investments in REITs today, most of my investment in AIMS APAC REIT was made when it was trading at a discount to NAV more than 10 years ago.

My investment in AIMS APAC REIT has been free of cost for some time and it is still generating income for me.

IREIT Global is a more recent investment in comparison and I increased my investment in the REIT substantially at a discount to its NAV and it is still trading at a discount to NAV today.

Sabana REIT grew from a small legacy position to a more substantial position after the low ball offer by ESR REIT was rejected and the purchases which resulted in the relatively substantial position I have now were made at a big discount to NAV.

I could go back a few years and it was the same with Saizen REIT, for example.

See my response to Felix Leong who said I was plainly lucky:
Saizen REIT: Right prices and luck.

Investing in bona fide income generating assets can hardly go wrong.




When there is mispricing, we could possibly make more money.

When compared to real estate, mispricing is not as rare when it comes to REITs.

In recent years, I increased my investments in non-REITs but it wasn't because I felt that REITs were no longer relevant to income investors.

Investing in income generating non-REITs is just a way to avoid concentration risk.

Yes, REITs reduce concentration risk but having 100% of our portfolio in REITs also creates concentration risk.

OK, before I confuse myself further, I better stop.

Remember, this is just AK talking to himself, as usual.

It is never my way or the highway.

References:



18 comments:

AK71 said...

Hi David,

I am not sure if you are a new reader but if you have been following my blog for a long time, you will know that I do not publish comments with links to pages requiring subscription as it suggests some commercial agenda is present or in the making.

Reference:
Why was my comment not published?

Unknown said...

Thank you AK, for your meaningful self talk session. This article resonates well with me as well, where reits investment means we do not have to liaise with property agents, potential tenants, Condo Management Committee, Handyman to make repairs, or replace spoilt furniture and electrical appliances. Basically fuss free, while waiting for the quarterly or half yearly distributions paid to us. =)

AK71 said...

Hi Unknown,

I have to get stuff at home serviced, replaced or repaired from time to time and that is seriously more work than I care for. -.-"

Of course, not everyone would agree with what I have to say which is natural and, indeed, investing in REITs is probably not suitable for everyone. ;)

Newer readers might want to read this blog:
Is investing in REITs right for you?

David said...

Hi AK,
My bad.
Noted.

Best Regards
David

AK71 said...

Hi David,

Hey, no worries.

We are on the same page now.

All good. :)

Henry said...

Bad AK. Lol. I agree with you and don't like to invest in physical property. If that one bet goes wrong, I am dead. I want to live till 100. Lol.

Henry said...

Hi AK. Forgot one point investing in physical property only yield 2%+ after deducting all the costs. Reits are definitely more attractive in dividend and is tax free.

AK71 said...

Hi Henry,

Is being financially dead in Singapore almost as good as being physically dead? ;p

Living till 100 means you win in the game of CPF LIFE too. Huat ah! :D

There are probably more speculators than investors around us although they might not know they are really speculating.

Reference:
Investment philosophy and property market.

Unknown said...

Hi, I noticed u have not featured any Reits that has China exposure. For examples, CLCT, EC World and Sasseur. Is there any reason to it and what is your opinion on those Reits? Thanks!

AK71 said...

Hi Unknown,

I do have an investment in CLCT (formerly CRCT).

In fact, I have been an investor since 2017.

See:
FLT and CRCT.

In 4Q 2020, I increased my investment in CLCT and also took part in the rights issue.

See:
4Q 2020 passive income.

I don't know much about Chinese business practices, their systems and law.

After all the excitement investing in China Minzhong so many years ago, I have not invested in Chinese outfits.

CLCT is run by Capitaland and, for what it is worth, that gives me some assurance. :)

SgFire said...

Not to mention how AK benefit from reit delisting like accordia, croesus, etc

AK71 said...

Hi SgFire,

Alamak.

Don't let too many people know or we won't get to buy stuff on the cheap in the future. ;p

Seriously, although I made money from the delistings, I would have preferred to receive regular income distributions for many more years.

Looking for replacement investments was too much work for lazy me. -.-"

Reference:
Replacement for Croesus Retail Trust.

SgFire said...

Shhh.....

AK71 said...

Mum's the word. ;p

C said...

Dear AK Shifu, I wanted to have a more resilient dividend portfolio by having some local banks shares, which OCBC seems like a better value just based on P/E and P/B. I am thinking of buying a bit if it retraces to around $11.00, Pity I miss the boat on lower price for OCBC. Wonder you can talk to yourself. Thank you

AK71 said...

Hi C,

In the last few years, I have been investing in non-REITs to reduce my reliance on REITs for income and investing in the local banks make good sense.

If I have not invested in the local banks yet and if I have limited resources, investing in any of the three local banks to start with is probably a good idea.

OCBC does look like it is a cheaper option than UOB and DBS now based on the ratios you mentioned.

Buying stocks of good companies during a bear market will yield better results, of course, but paying a fair price for good companies at any time isn't a bad thing either. :)

CL said...

Hi AK

There has been quite a number of corporate actions in the SG reit space recently (i.e lendlease reit, MCT & MNACT reit etc...)

What would your thought process be and perhaps a framework that young investor like us can start of with when we evaluate such corporate actions.

Thank you for your sharing.

AK71 said...

Hi CL,

I have published my reply to your comment:
How to invest in REITs?

Gambatte! :)


Monthly Popular Blog Posts

 
 
Bloggy Award