How do I invest in REITs and how does it work?

Hi Anon!

What is REIT?

REIT that stands for Real Estate Investment Trust, is a unique set of stocks that an investor should consider while planning their long-term retirement portfolio. It not only allows them to pool their money to invest in real estate assets and generate a steady income from it but also gives them an exposure to capital appreciation over a period of time as the value of the property increases.

Although similar to an Exchange Traded Fund (ETF) or Mutual Fund, a REIT however, uses an investor’s money to buy and operate a portfolio of properties such that they become the shareholders of these properties.

There are other benefits of investing in REITs, such as portfolio diversification and tax advantage. Generally, REITs are required to pay 90% of their income as dividends and in doing so, they are not taxed at the corporate level.
Listed below are some key factors to be considered when investing in REITs:

1. Total Returns: REITs are total-return investments, and that’s why investors should consider companies that have done well historically at providing both dividend income and growth.
2. Liquidity: REITs have relatively lower liquidity risk as compared to directly investing in real estate. Investors should look for REITs that are actively traded on an exchange.
3. Industry Type: Not all REITs will have the same outcome. For instance, Singapore REITs have six broad categories: office, retail, residential, healthcare, hospitality, and industrial. Different properties with their specific characteristics affect the REIT’s growth, risk profile, and performance in different ways.
4. Stability: Strong management can make a huge difference. Investors should consider companies with a long-term track record.
5. Quality of the REIT: There are far too many factors to consider when making any investment. Quality is one that cannot be compromised. Investors should look for REITs with great properties and tenants that generate solid cash flow.
6. Diversification through REIT ETFs: Instead of buying individual REIT stocks, investors should consider diversification through REIT ETFs like the Vanguard Real Estate ETF(VNQ).

To invest in REITs, you can do so via the Singapore Exchange and you would need to open a CDP (Central Depository) account just like for any investment!

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I think this article is the clearest and most concise explanation on REITs done by our govt. https://www.moneysense.gov.sg/articles/2018/10/...
Basically a REIT is a pool of investor's money that invests in income-generating properties like Hospitals, Office Buildings, Malls.

When the REIT receives rental from these properties, the manager passes you back 90% or more of the total income it received from tenants.

You can buy REITs on SGX. So all you need is a CDP account and a broker to execute the trade for you.

There are a few ways to evaluate whether a REIT is over or undervalued and yes Price to Earnings Ratio is one of the factors you may want to consider. Do also understand whether a REIT or property exposure is complementary to your portfolio and risk profile.

Property funds tend to be classified as one of the highest risk asset class as they are leveraged products (borrow money to buy these properties) that are very sensitive to interest rates (because they have to pay interest on the money they borrow) and cyclical in nature (property prices and rental yields go up and down frequently).