Investing in REITs

When anyone talks about investing in property, most of us will be thinking of buying a property and sells it when the price the property can fetch is high. Some will be thinking of renting out the property and enjoy the passive income that it can bring. Known as Real Estate Investment Trusts (REITs) are special investment instruments, listed on stock exchanges around the world, where investors invests in companies that manages properties directly.

What is a REIT?

Being collective investment schemes, REITs invest in a portfolio of income generating real estate assets ranging from shopping malls, offices, hotels, service apartments and more. The assets of the REITs are managed by a REIT manager and revenues generated, usually from rental income, are distributed regularly to its investors. Typically investors of REITs have a goal of enjoying its income distribution and long term appreciation potential.

Structure of REITs

Structured as trusts, the assets of REITs are held by an independent trustee on behalf of its investors. The duties of the trustee, typically include ensuring compliance with all applicable laws and protecting certain rights of the investors, are laid out in the trust deed for the REIT.

Money raised from the investors through an Initial Public Offer (IPO) are used by the company to purchase a pool of real estate properties. The properties, managed by the trustee, are leased out to tenants and the income generated from the leasing of the property is then returned to the investors as income distributions or dividends.

REIT Structure
Typical structure of a REIT

Roles of REITs in Your Portfolio

In the United States, the life expectancy at birth in 2012 is about 78.74, rising steadily every year. With more years to rely on their retirement savings, many of the retirees are turning to increase their investment allocation to real estate, including REITs. With the requirement of passing at least 90% of their taxable income to the investors, REITs are seen as great income generating investments. On top of that, like stocks, REITs also provides opportunity for capital appreciation.

Statistic: United States: Life expectancy at birth from 2002 to 2012 (in years) | Statista


The Bottom Line

As more people are actively looking for means to beef up their retirement savings, many are turning to real estate investing, for rental yield or capital appreciation. However, investing in real estate may not be a viable solution to many who could not afford the instalments. REITs allows investors to invest in real estate like stocks. With the distribution of their partial taxable income, REITs provides investors a means to invest in real estates with a cheaper investment option.

Alibaba’s Singles’ Day Sales at $9.3bn

AlibabaSingles’ day is a day for people who are single to celebrate on November 11th (11.11) every year and every year on this day, Alibaba Group (NYSE: BABA) holds the world’s largest 24 hours online sale, comparative to “Cyber Monday” and “Black Friday” in the United States.

On this day alone, sales on Alibaba had reached 57.1 billion yuan (US$9.3 billion), shipping a total of 278 million orders, of which 43% are placed on mobile devices. On the same day last year, sales was recorded at $5.8 billion, shipping 150 million packages.

“We are very happy with the results of this year’s 11.11 shopping festival.” Alibaba Chief Executive, Jonathan Lu, said.

Learning from Holiday Planning

Travelling on a holiday is an event that almost everyone will be looking forward to and with information readily available at our fingertips, more people are opting for a self-planned holiday than heading down to a tour agency to sign up on a package tour.

While I am planning for my upcoming trip, I was going through the various hotel booking websites like Agoda to find the hotels that has the best bargains.

What Can We Learn From Holiday Planning

Although booking hotel for your next holiday may seem a very normal thing to most of us, this very trivial act of booking a hotel have got lessons for us to learn that can be applied to our investments journey.

Knowing What to Buy

When you are looking for a hotel for your next hotel, the first thing you would do will be to search around the area where you want to visit for hotels where you can stay in. Similarly for investment, knowing what to invest should be the first thing that you should know. More often than not, an investor does not know what they are buying and falls into the trap of making the wrong investment.

Knowing what to buy includes knowing what kind of investments. Many kinds of investment instruments exists, for example like equities, bonds and forex. Understanding the investment instrument before putting your money into it will reduce the risk of losing your hard-earned money.

Looking for the Best Bargain

While you have zoomed in to your next destination for your next holiday, what I would usually do is to visit my favorite hotel booking website, Agoda. With over 500,000 hotels worldwide for booking, all I need to do is to key in the destination that I would like to visit and they will return me with a list of hotels in the area and the cost of booking with them. Of course, I would not stop there after booking my hotel with them. I will continue to monitor the price of the hotel and at times when there are special discounts, I will not hesitate to re-book or request for them to honor their “Best Price Guarantee” policy.

Unlike hotel bookings, investors have the option to invest more (you cannot be booking extra rooms in this case) when the stock are selling at a discount. However, more often than not, investors often flee away in fear, during a recession, when stocks are selling at a discount.

Research, Research and Research

I had once stayed in a hotel during one of my trips and the awful experience struck is so bad that I think it will “haunt” me for life. Nope, the hotel was not haunted like some of you may be thinking. The hotel was badly maintained with the furniture stained with God-knows-what and while in the room, my body just itch all over.

Had only stayed there because I thought I have gotten the best bargain as it was the cheapest hotel in the area. Only thing that I had totally forgotten to do was to do research on the hotel by reading the reviews. Ever since, before I book any hotel, one of the things that I MUST do was to look through the reviews of the hotel.

Many of the novice investors just listen to hot tips given by their friends and relatives and investing in the stocks only to realise that they are at the mercy of the stock price. Just like doing a research on the hotels, research on the stocks are equally important. Research materials may be in the form of reading the financial section of the papers, understanding the business the company is in through your daily lifestyle and of course, hot tips given by friends and relatives.

The Bottom Line

Investing is not as difficult as what most people perceive it to be. Many investors fail only because they make their investment decisions blindly by following what others tell them. By understanding the investment instrument, looking the best bargain and doing own research, investment is actually not very hard.

Hope that what I have learnt in holiday planning can help you with your investment journey.