Why I hardly invest in Reits

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Reits are popular in Singapore. And there is nothing wrong owning some of them.
I personally have not held any Reits for a while (mostly due to point 2 & 3 below). This does not mean that I am not currently looking out for them because I see no harm holding a small substantial amount to diversify.

Below are the reasons why I minimize holding Reits:

  1. It is better to have Reits when we have large capital to capitalize on the given yield. 5% yield on $4000 is mediocre but 5% yield on $40,000 is something. In other words, I feel Reits suit the rich more.
  2. Reits tend to move slow in prices (same for Trusts). Yes, this means they have less speculative movements. However, I am still quite young and able to take more risks by building more cash from price appreciations. Instead of gaining about 5% yield , there are so many better risks-rewards out there to grow our money. 
  3. Most of us should know by now, Reits are exempted from taxation as long as they distribute at least 90% of their revenue to shareholders. This explains why their yield are generally attractive. What is expected to happen during down times (declining net profits) in order for Reits to maintain the same payout per share?
  4. Most Reits move with the economy unless we are talking about more defensive Reits like Parkway Life. If we really want to go long term in Reits, I feel it will be worth waiting for the next cyclical downturn. 
  5. Most Reits are heavily in debt and some even have debts higher than 40% of their net worth. 
In my own opinion, anyone thinking to go “All-In” on reits without diversifying should probably think twice.
Thanks for reading,
and Happy Chinese New Year, folks!
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