One of the common questions I always receive in my seminars is what type of asset classes are suitable in our retirement portfolio. Is it endowment, annuity, universal life, bonds, equities, physical properties, land banking, hedge funds, etc. Physical properties is one of the most favorite asset classes when come to investing in Singapore. However, there are some disadvantages on physical properties investing when we are entering into our retirement age.
REIT stands for Real Estate Investment Trust and can be served as alternative to physical property investing. I will share here 5 reasons to include REIT as alternative investment to physical real estate in your retirement portfolio.
- Liquidity – during our retirement age, we need liquidity to pay for our living expense and for any unforeseen medical expenses. The flexibility and easiness to liquidate our investment assets to cash is extremely important. For retirees who are holding many physical real estate may want to consider to REIT as alternate to physical real estate for their retirement years as it can be liquidated immediately and get the cash back within 5 working days.
- Tax free and Lower total cost – there are many tax advantages by investing in REIT because the dividends generated and capital gain from REIT are not taxable. However, there are BSD, ABSD, SSD, Property Tax, Rental Income Tax by investing in physical real estate. In addition, investors still have to pay for hefty legal fee and agent commission, fire insurance cost, repairs and maintenance cost. No legal fee is payable and the brokerage commission is much lower for investing in REIT.
- High yield – REIT offers 5-9% annual dividend compared to physical real estate which generate between 2-5% depends on the real estate types. The REIT manager always look for yield accretive acquisition and go through a series of AEI (Asset Enhancement Initiative) of the portfolio to increase the distribution payout every year.
- Diversification – REIT offers better diversification in terms of number of properties, property types, tenant based, geographical and sectors compared to landlord who can only own one or two residential properties with the resources available. Investors are able to have a well balanced and diversified portfolio with a little as a few thousands dollars of the investment capital for retirement.
- Hassle free – As the landlord of the investment properties, he or she has to deal with the sourcing of properties, negotiation of the Sales & Purchase Agreement, apply and service the bank loan, collecting rental, managing the tenants, dealing with the property maintenance, etc. However, there is no such hassles when investing in REIT as there are professional managers engaged to deal with all these tasks.
In summary, people should enjoy their retirement years by fully optimising their investment to generate the monthly passive income. Retirees should enjoy their retirement instead of getting worried about their investment and also deal with all such hassles. REIT is an asset class which retiree should include into their investment portfolio for their retirement.
Kenny Loh is a Senior Consultant from Singapore Largest Independent Financial Advisor helping clients in building an investment portfolio for retirement. He specialised in Singapore REIT and has been conducting REIT investing courses for past 6 years.
He won the Top Investment Asset Under Advisory (AUA ) 2nd runner up in 2017 and currently managing million of AUA. He also won the Best Practice Consultant Award in 2017. He can be contacted through firstname.lastname@example.org if you would like his help to personalise a REIT portfolio for your retirement.