A Personal Finance Blog for Malaysian: Why you MUST invest in REITs

Thursday, October 28, 2010

Why you MUST invest in REITs

Summary of REIT in Bursa Malaysia, based on closing price as at 27.10.2010

What is REIT
  • Effectively it is the hybrid of invest in real estate and invest in stock market at the same time.
  • You may invest in real property without direct invest in real property.

Advantages of investing in REIT:
  • Allows one to tap into real estate investment at low capital, start from as low as RM3,000 or RM1,000 (no need to start with RM20,000 or RM50,000 in real estate investing)
  • Low transaction cost (no legal fee and no expensive stamp duty)
  • Low brokerage of 0.42% (or lower with min RM12 per contract) instead of paying agent 3.0% on the property value which can be easily RM5,000.
  • Easy to cash out, Fast to cash out and can cash out a fraction of your investment instead of selling 1 unit of property.
  • Guaranteed positive cash flow (quarterly or half yearly) as it is required by law that at least 90% profit be distributed as dividend to unit-holders, i.e. YOU.
  • May enjoy the capital appreciation too as properties under REITs always revalue to reflect the market value. Once revalued, chances are the share price will goes up too.
  • High effective return (after tax) as compared to most real estate investment
  • No maintenance fee, no quit rent, no assessment, no fire insurance
  • No tenant management
  • No need to pay agent to secure tenant (or advertisement fee)
  • No mortgage issue.
  • Good for those need passive income (no time to manage tenant or pay bills)
  • REITs are managed by professional. Less mistake if compared to if it is managed by individual investor.
  • Low tax rate (withholding tax of 10% only - good for those income in high tax bracket of 19%, 24% or 26%)
  • Allows easy diversification. With capital of only RM50,000 you may invest in REITs in shopping mall (STAREIT or HEKTAR), hospital building (ALAQAR), office and warehouse (AXREIT) and plantation (BSDREIT).
 Disadvantage of investing in REIT (not many but I try to list some):
  • Low leverage factor of 0.6 only (can apply for share margin of 60% only). Unlike real property, leverage factor of 6 and more. (Example, if deposit  is 15%, Leverage factor = 1/15% = 6.66)
  • Subject to market risk (however, REIT is classified as defensive stock in case stock market crash)
Click here for more information about investing in REITs.

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