How to invest in REITs?

This is a reply to a reader's comment on REITs and how I process them in my mind. 

If you are interested, see reader's comment: HERE. 

My reply: 

What we look out for will depend on our motivation. 

As an investor for income, I am more interested in whether my investments are able to pay me a meaningful and sustainable dividend.

This is especially important for a retiree like me with no earned income.

When it comes to REITs, I pay attention to whether money is being put in my pocket.

I would ask if what the management is doing would be beneficial or detrimental over time?

If beneficial, we want to make sure the benefits are bona fide for the longer term.

We want to make sure that the benefits are not illusionary or temporary.

Of course, there are other things to consider because we don't want to put money in an Eagle Hospitality Trust, for example.


It is hard to put everything down on paper because it could also just be personal experience at times. 

I could get bad vibes and just decide to stay away for peace of mind, for example.

So, for a start, understand what you want and you will know what to look out for.  

"I can never make it easy by saying ‘Here are three things’. You have to derive it yourself to ingrain it in your head for the rest of your life." 

- Charlie Munger 

Having said this, there was something I gave out during my talks (i.e. Evening with AK and friends) in the past and it might or might not be useful to you:

I also pulled some older blogs which I think might make for interesting reading: 

1. Ascendas Hospitality Trust: A nibble. 

2. Eagle Hospitality Trust: My philosophy. 

3. Saizen REIT is undervalued. 

4. Croesus Retail Trust and current thoughts. 

5. Sabana REIT and current thoughts. 

6. REITs and rights issue.

After more than 12 years of blogging, you could probably find more related posts in ASSI if you do a search.

You could also go to the web version of my blog and read the blogs linked in the right sidebar.

Unfortunately, the mobile version of my blog does not display the sidebars (and many other things.)

Gambatte! 

Recently published: 

Why AK invests in REITs?

Why AK invests in REITs?

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:

Eagle Hospitality Trust: Financial engineering NAV.

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:

Gear up to get more passive income?

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.

See:
$500K stuck in bad property investment!

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:

1. Dumping all my REITs.
2. Largest REIT investments.

3. 4Q 2021 passive income.

Recently published:
Lost on Alibaba and $200K left...

Lost more on Alibaba and $200K left for AIMS APAC REIT.

Another reader left me a comment but didn't want his identity known.

So, not publishing his comment which has a link to his page.

The comment:

Dear AK 

Thanks for selflessly sharing your knowledge, experience and wisdom...

I recently found your blog when i googled for news on Alibaba...

Bought some Alibaba when so many said it was cheap and bought more to average down...

Wish i didn't because now lost even more... really a lot...

Your investing style seems rock solid and i want to learn more from you...

I only have about $200,000 cash left which can be invested...

Thinking of putting it all in Aims Reit because with war in Europe it is safer than Ireit...

7.5% yield now will be $15,000 passive income a year... will help me recover...  

Correct me if i am wrong...  wish i knew...

BK 

No regrets investing for income.

Dear BK, 

Welcome to ASSI and I am glad you have found it useful. :) 

I don't give advice. 

Not allowed to and don't want to. 

Responsibility scares me. -.-" 

A few things though. 

Please remember that 

Putting money in a REIT is not putting money in a fixed deposit and we should not look at distribution yield only. 

Putting all our money in a single investment leads to concentration risk and if that investment should go bad, we are sunk. 

AIMS APAC REIT is a big investment in my portfolio but it isn't my only income generating investment. 

You might be interested in the following blogs:

1. AIMS APAC REIT or IREIT Global?

2. Largest REIT investments updated.

3. DBS, OCBC and UOB.

4. Survivability and opportunities.

5. Make recovering from losses easier.

Retirement drawdown strategy? Passive income and CPF?

This started out as a reply to a reader's comment and it got so long that I decided to publish it as a blog.

My reply:

I think I am a bit like that too. 

I am comforted by a high level of savings. 

See: Save 100% of your take home pay! 

Mentally scarred. (TmT) 

See: Life was difficult... 

However, I have been less tight fisted in recent years with money. 

There are more important things in life than money, after all. 

For example: My passive income from 2015 all gone! 

Bad AK! Bad AK! 

As for your question on retirement drawdown cases, this is something other readers have asked me before. 

There is no shortage of advice on the internet on this topic. 

However, this is a difficult topic for me to blog about because all of us have different circumstances, varying needs and wants. 

We are also wired differently and will find comfort in different approaches. 

I can only talk to myself about what works for me. 

In my retirement, I do not want to worry about outliving my savings. 

My focus is on passive income generation so that I would not have to draw down from savings. 

I do feel that this is a valid and even important idea to consider but like I said, we are all wired differently. 

If I keep my needs simple and wants few, I might never have to draw down from savings and I might even be able to grow my savings in my retirement. 

Of course, regular readers know it all started with a spark. 

See: To retire by 45, start with a plan. 

So, the focus for many years leading to my early retirement a few months before I turned 45 was to invest in bona fide income producing assets. 

Of course, we must always hold some cash and this, of course, includes our emergency fund and war chest or opportunity fund. 

See: How much should we have? 

It is good that you mentioned CPF because my CPF savings, apart from yearly voluntary contributions and top ups, is really on autopilot. 

Conventional wisdom tells us that investment grade bonds should be a significant proportion of our portfolio in retirement and the CPF works for me.

See: Unless we are very rich, CPF is all we need.

If I ever need to, I will be able to make withdrawals from my OA and SA in a few years from now when I turn 55 years of age. 

See: Withdrawing CPF savings. 

I do not see that happening unless my passive income is severely curtailed or if I suddenly need more spending money. 

Money in the RA will automatically be drawn upon once I turn 70 and, of course, that is CPF LIFE which is a lifelong annuity. 

See: Make CPF LIFE work for us! 

I know this is a tangential answer to your question. 

However, like I said, we are all different and there are just too many possible draw down cases. 

Know what we need and want in retirement. 

Look at what we have now.

Think of what we are able to do from now till our desired retirement age.

Devise a realistic plan which we are comfortable with. 

Be disciplined and march towards our goal. 

Of course, a good dose of luck helps. 

Once our goal is met, in our retirement, be cautious and stay mostly conservative when it comes to money and we should be fine.

The best retirement drawdown strategy is the one that gives us peace of mind.

Related post:

Retirement adequacy for late bloomers.

Recently published:
Cutting Alibaba and investing for income.

Cutting Alibaba and investing for income.

The reader who invested in Alibaba at $220 a share has thrown in the towel.

He now wants to invest for income to recoup his rather massive losses.

If you do not know what I am talking about, you might have missed this blog:

Invest in Alibaba? High risk, high reward?

AK says:

Investing for income is not about getting rich fast.

It is more about getting rich slow.

It definitely isn't sexy and it can even be boring.

I have a weak heart.

So, boring isn't a bad thing.

What is investing for income?

In a nutshell, look for bona fide income producing assets and pay a fair price for them.

Of course, if we can pay an unfair price for them by paying less than what they are worth, even better.

Remember, if it looks too good to be true, it could well be too good to be true.

See:

Is Eagle Hospitality Trust worth it?

and

$71,000 in alternative or bogus investment?

I know some people are losing more than money as stock prices plunge.

Some are losing their minds especially those who are speculating or investing with money they cannot afford to lose.

If we are investing for income, we should be less concerned with prices but more concerned with value. 

Buy income generating assets at prices which make sense to us. 

Do not chase rising prices.

Do not fear falling prices. 

Do it right and we will be rewarded over time.

If AK can do it, so can you!

Reference:
Investment philosophy is timeless and so is ASSI.

Mr. Market trembles as Russia invades Ukraine.

What is AK doing differently?

Well, I am trying different things in Genshin Impact such as putting different characters in a team to see how things work out for them.

Oh, you mean doing things differently in the stock market?

Oops.

I haven't done anything.

So, what's there to say about doing things differently?

Nothing.

If we are investing in good income producing assets, there is really nothing much to worry about.

I can continue gaming and not look at the stock market for many years in a row and these assets will probably still be generating income.

There is, however, a big "IF."

If we did not invest with money we cannot afford to lose which includes debt in all its forms...

Mr. Market will have mood swings and there is really no telling why and when these mood swings happen.

When Mr, Market's mood swings happen, stock prices usually see big moves.

Plunging prices shouldn't matter to us if we are invested in good income producing assets as long as we are not investing with money we cannot afford to lose.

Then, there are speculators.

Speculate only with money we can afford to lose.

If we cannot afford to lose a single cent or don't like the idea that we could lose money, don't speculate.

Remember, Mr. Market can stay irrational far longer than we can stay solvent.

Remember, don't risk losing the things we need for something we really don't need.

Remember, nobody cares more about our money than we do.

We don't want to have to liquidate at prices we would usually have rejected.

We don't want to be at the mercy of Mr. Market.

After all, Mr. Market is not known to be merciful.

When the tide goes out...

So, why am I able to keep cool and continue gaming?

If AK can do it, so can you!

Related posts:

1. Cut loss on Alibaba or buy more?

2. Investing with common sense.

3. Investing peace of mind.

4. How much passive income is enough?

5. Market sways while AK plays.

6. Lost life savings and now in debt.

Investing for income works! F.I.R.E. away!

It has been more than a month since the last time I blogged.

I have been spending most of my time in Genshin Impact in the last month but I also took several days off from gaming to attend to stuff in real life.

I will be taking a few days off from gaming to spend more quality time with my parents again this month too.

In my retirement, I try to keep things as simple as possible.

Keeping things simple is seen in my investment philosophy as well as I mostly invest for income and avoid active trading which requires more time and energy.

Investing in good income generating entities which have the ability and willingness to reward their investors is a good way of avoiding emotional roller coasters too.

If you believe that peace of mind is priceless like I do, then, investing for income is probably right for you.

GONG XI FA CAI

So, is investing for income easy?

Is it just about looking for investments which offer the highest yield?

Ahem, have you read about Eagle Hospitality Trust (EHT?)

If you haven't, I have a series of blogs on EHT and one of them is about a reader's experience.

Of course, we cannot be right all the time as even the best of plans can go wrong.

However, if we know what to look out for, we can definitely make better decisions.

If you have been following my blog for a long time, you will know that I share my philosophy and methods openly.

You would probably have an idea of how I go about investing for income.

However, it is all rather piecemeal. 

I have been told by quite a few people that my blog is disorganized but if someone is willing to do the legwork, learning how to invest for income just by reading my blog might almost be doable.

For people who do not have the inclination nor the time to comb through my blog, then, attending an inexpensive and well designed course on investing for income is probably a better idea.

Dividend Machines is the only course on investing for income I have ever promoted.

I even attended the course myself when it first launched so many years ago.

Investing for income is an important reason why I am able to have more time to do the things I enjoy.

Investing for income is an important reason why I no longer even have to work for a living.

Financial freedom isn't impossible.

Early retirement isn't impossible.

What I have achieved might seem magical to some but investing for income really isn't magic.

Run by good people, Dividend Machines is not only well designed, it is also inexpensive and provides great value for money.

Find out more here: 

Dividend Machines 2022.

Want financial independence and the option to retire early?

F.I.R.E. away!

Investing for income works!

If AK can do it, so can you!

Why Top Up my CPF Medisave Account?

This is going to be short blog in reply to a reader's question. 

It is a question I get asked somewhat often. 

Sharing the reply as a blog is probably a good idea as it would give me a blog to point to in future.


So, the reader wants to know why Top Up my Medisave Account (MA) when the money cannot be withdrawn? 

The reader is probably referring to the Basic Healthcare Sum (BHS) which has to be maintained in the MA once we turn 65. 

Otherwise, of course, the BHS can be drawn upon for specific purposes. 

For me, the objective of the MA is to have funds for medical expenses in case of hard times. 

To be honest, I hope I don't ever have to do a withdrawal. 

If I must draw upon the money in my MA, it means that I am very sick and experiencing financial hardship.


Anyway, the next thing I am going to say is something I have blogged about before. 

Having a maxed out MA also means that I get free medical insurance.

Want to know how? 

See: 

How to get free medical insurance in Singapore? 

Since the reader's focus seems to be on CPF funds withdrawal at age 55, it should be interesting to note that any excess interest income generated by our MA will flow into our Special Account (SA) or into our Ordinary Account (OA) if our SA has hit the Full Retirement Sum (FRS.) 

For me, it flows into my OA. 

See:

 


Since the MA has the same interest rate of 4% as the SA, this mechanism makes it attractive as an additional income generator since money in the OA and SA can be withdrawn once we have set aside the FRS in our Retirement Account (RA) at age 55. 

Some readers might also be interested in this blog: 

Free medical insurance in our old age. 

If we can afford to do so, I believe that maxing out our MA is a good idea.

Max it out and let compound interest do its magic.

As usual, this is just me talking to myself, of course. 

Recently published: 

1. Almost $1.1m in CPF savings! 

2. 2022 Top Up and Voluntary Contribution done. 

3. Should I enroll in Careshield LIFE? 

4. 4Q 2021 passive income.

Almost $1.1M in CPF savings!

One year ago, at a bit more than 49 years old, my CPF savings hit $1 million or a bit more.

It was a really good way to start the year in 2021.

This year is even better.

My CPF savings made a total of $31,207.95 in interest income in 2021.

Of course, recently, I made a Top Up to my MA as well as Voluntary Contributions to my OA and SA.

See:
2022 CPF Top Up and Voluntary Contribution done!

Now, if we put everything together, I have almost $1.1M in CPF savings! 

So nice to start 2022 with an absolutely auspicious bang!

See:

I am staying the course and will continue to grow my CPF savings with some much appreciated help from the government.

As I am a retiree, I will have to grow my CPF savings voluntarily which is more demanding compared to people who are still in the workforce.

However, it is definitely worthwhile.

The volatility free and risk free nature of CPF coupled with attractive "coupons" makes it the ideal investment grade bond for me.

See:
Retire with an investment grade bond and an annuity.

The strategy really isn't difficult to understand.

However, I do understand that depending on our circumstances, we might not need to or be able to execute the strategy.

Of course, some might not even want to.

It doesn't really matter to me.

After all, ASSI is just a blog for me to talk to myself.

Eavesdrop if you like and if you like what you hear, good.

If the ideas work for you, even better.

Don't be like some people.

See:
Unhappy with CPF and angry with AK!

To everyone who is on the same rewarding CPF journey, congratulations!

Huat with CPF!

Really, time does fly.

Remember this blog from 2015?

AK is buying a 12 year tenor AAA bond.

Do the right thing.

Do it early.

Reminder:

Don't do silly things and we can retire smart too.

Of course, AK is just talking to himself again.

If you are new to ASSI, you might want to read the following blogs:

1. This guy has $800K in his CPF!

2. Investors eat crusty bread with ink slowly for peace of mind.

3. 1M50 CPF millionaire.

2022 CPF Top Up and Voluntary Contribution done.

How time flies and it has been more than 5 years since I became a retiree, just a few months before I turned 45. 

In my case, financially, the biggest negative aspect of being a retiree is probably the lack of mandatory CPF contributions. 

I mean my passive income is large enough to replace my past earned income and then some. 

So, I suppose my cash flow is healthy enough. 

However, as I believe in growing my CPF savings so that it continues to act as a meaningful bond component of my investment portfolio, I would do Voluntary Contribution every year to the maximum allowed. 

Yes, I have been growing my CPF savings without any help from mandatory CPF contributions which those who are employed receive. 

Makes me wonder if I should return to the workforce? 

Exchange my time for money again? 

Lazy me working again? 

PTSD!


Of course, even in my retirement, I was not able to do any Top Up to my CPF account as my CPF SA has exceeded the prevailing FRS. 

Year after year, the interest earned by money in my SA would exceed any increase in the prevailing FRS. 

Yes, without me having to do anything, my SA stays above the prevailing FRS. 

See: 

CPF SA is not a myth. 

This year, however, I am allowed to do a Top Up but to my MA, not my SA. 

If you missed my blog in November last year on the topic, please read: 

CPF Amendement Bill 2021 and AK talks to himself.


What did I do this year?

In my case, I am interested in pumping as much cash as possible into my CPF account. 

So, for maximum cash injection into my CPF account, I first did a $3,000 Top Up to my MA to hit the new BHS of $66,000. 

Then, I did a Voluntary Contribution or VC3 (i.e. VC to 3 accounts) that is equivalent to the CPF Annual Contribution Limit of $37,740. 

The order is important because if I had done the Voluntary Contribution first, then, the money would have flowed into my OA, SA and MA, leaving less room to Top Up my MA. 

As I did the Top Up to my MA first, I could inject more funds in total to my CPF account and money from the Voluntary Contribution or VC3 flowed only into my OA and SA, effectively becoming VC2.

AK so witty.

Compared to the last few years, total voluntary cash injection into my CPF account this year is higher at:

S$ 40,740.

Those of you who complain that AK has not been giving 4D might see a potential 4074 here.

Kidding!


I have said it countless times but CPF members are a fortunate bunch. 

Albert Einstein said compound interest was the 8th wonder of the world. 

He who understands it, earns it. 

It is the same with the CPF. 

Happy New Year! 

Recently published: 

Should I enroll in Careshield Life?

Related post:
CPF interest income in 2020.

Should I enroll in Careshield Life?

Some time back, a reader asked me about Careshield Life and being the lazy person that I am, I didn't want to blog about it.

I simply said that my attitude towards Careshield Life is the same as my attitude towards Eldershield which is the truth.

They are both disability insurance products and if we have the best insurance in life, we don't really need these.

See:

Eldershield: Is it really necessary?

and

Best insurance to have in life.

However, as many people do not have passive income that is sufficient for them to stop working, it is a good idea for them to have disability insurance.

For this group of people, Careshield Life is a better product than Eldershield for the following reasons:

1. Lifetime coverage.

We only need to pay till we are 67 years old or for 10 years after joining, whichever is later, and we are covered for life.

2. Lifetime cash payouts.

We get monthly payouts for as long as we are severely disabled while Eldershield only pays for up to 6 years.

3. Payouts increase over time.

Eldershield pays a fixed amount of $400 a month while Careshield Life pays $612 a month and it will increase at 2% per year.

Low income families probably need Careshield Life the most and they will receive significant subsidies. 

For those of us who are older, we will get incentives for joining Careshield Life by 31 Dec 2023.

I received a letter from the Ministry of Health to automatically enroll in Careshield Life last month. 

Based on my age, I will get a small incentive to do so too.

Since I was already enrolled in Eldershield to help lower the cost of collective risk sharing at the suggestion of a friend, I went with the automatic enrollment.

Careshield Life is a low cost disability insurance product. 

For me, the premium is $200+ in the first year after subsidy and incentive. 

I also like the idea that I am doing some good for society with my enrollment.

For anyone who is interested in finding out more, do a login with your Singpass at:

careshieldlife.gov.sg/cshl-premium-checker 

to check on the premiums.

To be fair, although self insurance is probably the best form of insurance, we can never tell if our passive income could be impacted negatively at any point in time.

So, having some disability insurance is probably not a bad thing even for those of us who have the best insurance in life.

Related post:
Total and Permanent Disability Insurance.

4Q 2021 passive income: Don't lose hope!

My last quarterly update was late by a few days.

So, I am compensating by being a few days earlier with this one.

Also, several things which will need my attention in real life have popped up next month in January.

Unfortunately, they are likely to be very time consuming.

As I still want to spend much of my time in virtual worlds, I might not have much time left in January for blogging.

Neverwinter is launching a new module, Dragonbone Vale, on 11 January but until then, I will be busy in the worlds of Black Desert Online and Genshin Impact.

I am really enjoying Genshin Impact and can imagine losing myself in that world for some time to come.

I blogged about retiring in 3 virtual worlds a few months ago and that included Guild Wars 2.

Genshin Impact has replaced Guild Wars 2 for me.

The 3 virtual worlds for me are now Neverwinter, Black Desert Online and Genshin Impact.

I wish I have many more hours in a day but, sadly, I don't have enough hours each day for more than 3 virtual worlds unless I abandon the real world.

See:
Dividends and retirement in 3 virtual worlds.

This short video clip provides a peek into the world of Genshin Impact.

Anyway, this is going to be a shorter blog as nothing really earth shattering happened in this quarter.

Well, at least I don't remember anything impressive.

If you would like a more detailed update regarding my investments and if you missed my last quarterly update, read:

3Q 2021 passive income: Better days ahead?

OK, on to the numbers.

Total passive income received from my investments in REITs and non-REITs in 4Q 2021:

S$ 21,283.82

Total passive income received for the whole year of 2021:

S$ 171,854.30

This is more than the S$ 120,000.00 that I need per year.

So, 2021 has turned out to be pretty good for me.

However, this number includes a one time distribution made by Accordia Golf Trust which is not going to be repeated.

Everything being equal, therefore, 2022 could see my passive income lower.

I am crossing fingers that 2022 will be a better year than 2021 for me.

Centurion Corporation could pay dividends again while ComfortDelgro and Ascott REIT-BT could pay their investors better in 2022.

Of course, with the Omicron variant of COVID-19 now running amok, things are more likely to get worse for some time to come.

Still, we must never lose hope.

To end this blog, I am leaving a link to a blog which did particularly well this quarter.

If you missed the blog, you might want to read:

Retiring by 40 is a fantasy for most and AK talks to himself.

Regular readers know what I am going to say.

It's still the same old phrase.

If AK can do it, so can you!

Wishing everyone good health and good fortune in 2022! 

Happy new year!