But, do you know you can actually own properties and still receive a portion of the rental collected paid to you with little money? From as low as $1000, you can start receiving rental from these properties. Here's how:
Owning a portfolio of properties with little money
Real estate investment trust or REITS provide you this opportunity to own a portfolio of properties. These properties are rented out and a portion of the rental that is collected will be paid to shareholders. You can buy these REITS through the stock market. Here are some examples:
1) Suntec REIT
Have you heard of Suntec or been there before? I'm sure you have if you live in Singapore. Suntec REIT owns their majority of properties in Singapore. This includes the Suntec shopping mall, the Suntec convention centre, the various Suntec office towers, a part of Marina Bay Financial Centre etc. If you buy the shares of Suntec, you are part of the owner of these properties and you are paid rental income from these properties. How much will you be paid?
For the whole year of 2013, Suntec REIT paid about $91 for every 1000 shares you own. If you bought at the current price of 1.64, this works out to a yield of 5.5%. Is this too low for you? Let's see the next one
2) Saizen REIT
You may not heard of Saizen REIT before as all of its properties are in Japan. They own a portfolio of residential properties. All these properties are rented out and a portion of the rent collected are distributed to shareholders. Sounds like renting out your house for extra income? I bet it is.
Saizen REIT owns a portfolio of over a hundred properties spread across Japan. You can own a part of all these from as low as $1000. Sounds like a good deal? The yield of Saizen REIT works out to be around 7.1%. Better still if you bought at the current price of 0.885, you are owning all these properties at a discount. The net asset value (NAV) shows us the fair value of the properties which Saizen REIT owns. The price of 0.885 is lower than the NAV of 1.17. This is a 20%+ discount to its value. Who doesn't like buying properties at a discount?
Buy low, rent out, collect rental
When we buy a house of our own, i'm sure many of us will find the best deals with a good location. If you're buying the property to rent out, you would naturally want to buy one which has a good location so you can rent it out at higher rates. If you can buy the property at below market price, that would be even better. But certainly you would not want to buy a property above the market price.
When we invest in REITS, its the same analogy. Buy the REITs below its NAV if possible and the properties should be in good locations fetching good rental income. From its annual report, we can see the properties occupancy rate, their locations etc. These are valuable information to look out for. Reading an annual report can be liken to reading a brochure of a property launch. It's fun and exciting sometimes.
Stock prices can fluctuate but it does not reflect the true value of the properties that the REITS own. It's more important to focus on the value of the properties and the income which it produces. In the long run, all else remaining equal, the stock price will reflect the true value of the properties it owns.
Investing in REITS can surely bring you that extra income. Not a lot but still better than nothing. However, when you have more money, it can become a lot. Invest $500,000 at 7.1% and see what kind of income you get. You'll be surprised.
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How do I buy this Reits?
ReplyDeleteHi,
ReplyDeleteYou can buy these Reits directly in the stock market. Just need to open a brokerage account from any licensed brokerage firms or banks. A financial representative can help you with the admin procedures.
Is it good time to buy reits. Most of the reits are priced high on valuation. Plus with the risk of recession and potential drop in value. What are your views on that
ReplyDeleteHi V.I.R.U.S,
DeleteIf its high on valuation, try not to buy. If property prices are expected to drop, also try not to buy. It'll always be better if we have patience to wait for a lower value.
How risky are REITs? Are they considered stocks?
ReplyDeleteHi,
DeleteYes, reits are considered stocks. They have the same risk as investing in properties or stocks. Investment always comes with a certain level of risk.
How risky is very subjective. In my opinion, I think as reits own properties, their risk is smaller as compared to other stocks like oil and gas. This is just my opinion.
Hi SGYI,
ReplyDeleteCoincidentally, I just blogged about Saizen REIT (again). Of course, you know I have a substantial interest in the REIT. :)
Saizen REIT has a strong balance sheet and the distribution yield is pretty decent. We have to remember that it owns freehold properties too.
If we are thinking of investing in Japanese residential real estate, investing in Saizen REIT is a better idea than investing in a single apartment in Japan.
Hi AK,
DeleteYou love Japan I love Japan too :p
The lost decade is finally seeing some light. Residential is always a good investment and with a reit that does just that, it simplifies the whole investment process. If Singapore had a residential reit I would consider investing in it as well.
Hi SGYI,
DeleteWe are discussing your blog post on FB and this was something I said in response to a question on Saizen REIT's NAV:
"We should always ask one important question about a REIT's NAV. Is it realistic? An unreal NAV has consequences.
"If the NAV is realistic, then, buying at a discount to NAV can be considered a type of asset play.
"In the case of Saizen REIT, for example, we can say that the NAV is realistic because when it had to sell some of its properties when it had trouble with YK Shintoku's CMBS a few years ago, the buildings were sold very close to valuation. This was in distressed circumstances too.
"Now, a good percentage of Saizen REIT's NAV is in cash. So, that makes the NAV more realistic. ;p In fact, if Argyle, a substantial unitholder, gets its way, we could see a return of this cash to unitholders. Could be as much as 20c per unit. Realistically, this is exciting. ;p
"There are many things we can say about NAV and being able to buy at a discount to NAV. The reasons could differ from case to case."
I don't know if you follow discussions on FB. So, cut and paste for you. :)
Hi AK,
DeleteI saw my post being shared by Winston and a few of you discussing on it. But I did not join in because I was using my real name on FB. Haha..
Thanks for sharing. Great to be learning from you ;)
Hi SGYI,
DeleteWah! You lurking in FB! LOL! ;p
Can start another FB account to join in the discussions?
Hi AK,
DeleteLOL, FB is my daily routine. :p
I'll try to create another FB account. :)
When the price is so below the NAV, you sometimes wonder if the reit manager is pricing these 2 reits extremely high versus the properties. take a walk around how empty suntec reit can get.
ReplyDeleteHi Kyith,
DeleteThat is possible. The price they value it may not be the actual price which they could sell. We can check the individual valuation of each property and compare it to the market price of surrounding buildings.
You mean how empty suntec mall can get? Weekdays its very quiet. Only during weekends then got crowd. They have this mall called park mall which is extremely quiet but it has 100% occupancy rate. Guess most are offices.
what is the point of hiding behind a blog lurk and read and not interact as a normal person
ReplyDeleteHi Kyith,
DeleteThat's the whole point of being anonymous. Just like many other financial bloggers. I know you're not anonymous but that doesn't mean others can't be.
If I am only 19, How do I create a passive income?
ReplyDeleteHi,
DeleteYou can save up and invest in income generating assets such as stocks or even start a part time business. Savings is thd first key. Learning to invest is the next step.