Direct Real Estate Investment vs. REITs

Well, a number of investment gurus, such as Robert Kiyosaki and Azizi Ali, advocate getting rich from real estate investment on the basis on its features like:

1. a kind of force savings

2. good in value preservation

3. appreciating in value in long term

4. regular rental income ……

Of course, there are many more advantages can be found in property investment. Also, a successful property investment needs to have good location and good tenant but it is not so easy to achieve both.

I bought my very first property way back to the year 1996, a year before Asian Financial Crisis. I rented it out for rental income then. I was fortunate enough to have the then tenant who was able to pay his rental on time without fail for his 4 years of tenancy. Meanwhile, I also invested in shop houses for rental. But, most of the time, the tenancy turned sour as those tenants ran away by owing their rental due to me. At the end of the day, I had to bear all related losses and seek for tenants again.

From my years of experience in property investment, no matter what method you use to filter your potential tenants, you just cannot predict what the tenant will be in the future. Meaning, they may be OK right now but not so in the future, may be due to loss of job or something. As a matter of fact, I am quite tire on following up all this.

By chance, I come to know REITs which are property trusts managed by trust managers. They are similar to unit trusts but we do not need to pay any upfront change. Further, you can only buy REITs from Bursa Malaysia. Yes, they are listed.  In short, buying a unit is just like buying a share. The cost of transaction is exactly the same as buying shares, no more other charges. Its NAV is calculated on daily basis based on its fund availability and properties values. In other words, if the unit price is lower than the NAV, you are actually buying the unit at a discount price. Further, the dividend yields from REITs are very attractive as well. Some of my REITs investment are giving me 10~12% p.a. dividend yield.

Beside all of the above, you do not have the headache on seeking right tenant; you do not have to search for the right properties at the right locations; you do not need to huge capital outlay to own properties; you do not have to collect rental by yourself. Everything is taken care by trust manager. Also, by owning the unit, you are also part of the property owner, just like you are one of the bosses by owning a company share. Therefore, what you need to do is to sell your units when the unit price is higher than NAV, or else, just sit back and wait for your dividend cheque to come. Isn’t it wonderful?