3 Reasons You Should Invest in REITs Instead of Buying a Second Property
Still on the fence about investing in REITs?
In today’s property market, where prices continue to soar especially in Singapore, Real Estate Investment Trusts or REITs offer a hassle-free alternative to direct property ownership.
With lower capital requirements and diverse investment opportunities, REITs stand out as a compelling option for investors seeking growth and stable returns – without the complexities of managing physical properties.
Let’s explore why investing in REITs can be a simpler and more accessible alternative to purchasing an additional property.
Reason #1: Lower capital requirements and better liquidity
One of the most compelling reasons to choose REITs over a second property is the lower capital needed to get started.
While buying a property typically requires a substantial down payment, investing in REITs lets you participate in the real estate market with a much smaller initial investment.
This makes it possible for more investors to enter the market without waiting to accumulate a large sum of money.
Furthermore, REITs offer superior liquidity compared to physical properties.
Buying and selling REIT shares is as simple as trading stocks on the market, allowing investors to quickly adjust their portfolios in response to market conditions.
There’s no need to qualify for a mortgage or wait for a potentially lengthy property sale process.
This flexibility means you can diversify your investments across multiple REITs, spreading your risk and maximising potential returns with less capital.
Reason #2: Professional management and reduced responsibilities
Investing in a property means taking on the responsibilities of a landlord, from tenant screening to property maintenance.
For many, these duties can become a time-consuming and stressful endeavour.
REITs, on the other hand, entrust these tasks to professional management teams.
These experts handle everything — from tenant management and property maintenance to ensuring legal compliance and conducting market analysis.
By investing in REITs, you benefit from the expertise and efficiency of professional managers.
This not only saves you time and stress but also ensures that your investment is managed according to the latest industry trends and strategies.
Reason #3: Superior diversification and risk management
Diversification is a key principle of successful investing, and REITs excel in this regard.
Unlike purchasing a single property, which ties your investment to one geographic location and market, REITs provide the opportunity for both geographic and sector diversification.
You can invest in a mix of residential, commercial, industrial and even healthcare properties across different regions.
Additionally, REITs offer built-in tenant diversification.
A property owner relies on the performance of one or a few tenants, whereas REITs spread the risk across multiple properties and tenants.
This diversification protects investors from local market downturns and ensures a more stable income stream.
Furthermore, REITs usually distribute dividends to investors throughout the year.
This creates a steady income stream that isn’t dependent on the ups and downs of any single property.
Get Smart: Choose REITs over physical property
Choosing to invest in REITs over buying a second property offers numerous advantages, including lower capital requirements, better liquidity and reduced management responsibilities.
The professional management and diversified nature of REITs provide a level of convenience and stability that’s hard to match with direct property investment.
High-performing REITs include CapitaLand Integrated Commercial Trust (SGX: C38U) and Mapletree Industrial Trust (SGX: ME8U), both showing strong financial results in recent quarters.
CapitaLand Integrated Commercial Trust reported a 1.7% year-on-year increase in gross revenue and a 5.4% year-on-year jump in net property income for the third quarter of 2024.
Similarly, Mapletree Industrial Trust saw a 4.2% rise in gross revenue and a 4.6% increase in net property income for the second quarter of FY2024/25, reflecting its resilience in a challenging macroeconomic environment. Its distribution per unit managed to eke out a 1.5% year-on-year increase to S$0.0337.
These REITs exemplify the potential for growth and stability, making them attractive options for a diversified investment strategy.
Investing in REITs could be the next step towards achieving your financial goals with less stress and greater opportunities for growth.
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Disclosure: Joanna Sng owns shares of CapitaLand Integrated Commercial Trust and Mapletree Industrial Trust.
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