In part 3 of our correspondence, we talked about investing in real estate for rental income:
Hi Ak
Another friend of mine (same age as me)is so concerned with unemployment before 50 yr old, that he keeps urging us to buy a condominium and then collect rental income on it.
He already owns an apartment in KL, and claims that he is successfully collecting rent of it. But he always avoid my question when I ask about currency & political risk of owning foreign properties.
Now he is aiming for his 2nd rental property in Singapore. He said that prices are coming down and good time to buy in 2015 or 16. But again he avoid my question when I ask him about maintenance costs affecting rental yield and the oversupply of condos/ foreign labour cut back in Singapore which makes it risky strategy.
When I suggest buying S REITS as an alternative, he said it's not worth doing it until he has a million dollar capital base.
He also say meeting minimum sum in CPF is no big deal for him..
I am highly suspicious of his recommendation.
Good if I can hear your objective view on owning a physical property vs buying REITS.
Thank you
C
My reply:
Hi C,
Well, there will always be risks in investments. Risks cannot be avoided but they can be understood and even managed.
Your concerns with regards to buying a property overseas for rental income are valid. I hope that your friend is still doing OK with the RM's decline in value against the S$.
Anyway, is it better to buy properties than to invest in S-REITs? The topic is well discussed by many people before. Personally, I feel that both are good investments as long as the price is right. Quite simple, really.
I don't know what your friend has in mind but if it is something vague like buying properties in Singapore in 2015 or 2016 is a good idea because prices will come down, I think he needs to do a bit more research and analysis.
Personally, I feel that any property investment must be able to provide at least a gross yield of 5% to 6% to make it worthwhile. This is a primary consideration for me and I blogged about the Rule of 15 before. Then, there is a whole gamut of other considerations which I have blogged about in a piecemeal manner before too.
Ultimately, I would say to do what you feel comfortable with. There are so many paths to financial freedom. Choose a path you are not only comfortable with but one which you are sure will bring you to where you want to go. :)
Best wishes,
AK
Related posts:
1. Rule of 15.
2. Journey to financial freedom is not a race.
3. Buying a property in Iskandar, Johor.
4. Don't think and grow rich. 3 points to note.
5. The head of a typical HDB flat household speaks (2).