How to Pronounce REIT

I realised to my horror that I have been pronouncing "REIT" (the acronym for real estate investment trust) or "REITs" wrongly.  For the longest time, I have been pronouncing it such that it rhymes almost with "red" except with a slight "t" sound at the end.

After watching some videos online, I think the correct way pronunciation is actually something that rhymes with "sweet" or "beet".

Hopefully, I will be able to change the way I pronounce it from henceforth.

The Mystery of REITs

I read with interest Mr Colin Tan's article in Today newspaper regarding REITs.  It is titled: "A decade on, REITs remain a mystery"

Indeed, after ten years since real estate investment trusts (REITs) were listed on the Singapore Stock Exchange, it seems that many people (including me) still do not really understand much about this asset class and the investment opportunity/risk involved.

I started taking note of REITs sometime back due to the potential dividends that I could receive.  It seemed like a choice investment instrument for me as I was really into income investing and was looking for ways to increase my passive income. My first investment was in First REITs. I subsequently divested it because it was too heavily focused on healthcare with its assets largely in Indonesia.  But while REITs are usually positioned as defensive play, I can agree with Mr Colin Tan that for Singapore REITs, many of them are still on the acquisition trail and are trying hard to expand their portfolios.

What does this mean for investors?  It simply means that once can expect money to be raised through rights issue. If one does not subscribe to the rights issue, your overall shareholdings as a % drop.  Whether this translates to a drop in distribution is probably a study to be taken up by somebody more experienced.  But I do agree that it seems that many of the REITs are linked to their parent companies and it might be questionable how the valuations are done (including of course the timing of the transaction).

The domestic market is also pretty small.  And I guess there are certain economies of scale required before REITs should start expanding overseas.  (Just think about the airfares that have to be paid for management to do the site visits, meetings, etc).  Of course, REITs are also tied closely to the property market and rental market and one needs to keep in mind all these factors when investing in them.  If one invests in REITs which has properties overseas, you are also exposed to other country risks that are involved.

Nevertheless, REITs still feature in my portfolio. I still intend to purchase more and diversify across the various REITs in order to diversify my risk accordingly.

Well, REITs is still a mystery to me in many ways and I am still slowly learning more about them day by day.  In a sense, they look simple.  But when one studies them further, you will come to realise that there are actually lots of complexities involved.

Tiredness Sets In and US Dancing with Debt

Phew... it has been a busy week. I have been doing some of my own research on REITs in Singapore but was too frightened to enter into the market during the recent weeks due the US "debt crisis". On hindsight, I guess we should have all figured that the Republicans and Democrats would have struck a deal in the end. But hindsight is always 20/20 and I guess at that point in time, no one could really tell.

Regardless of the "good" news that the debt default is no longer a worry, the next concern will be the potential downgrade of US credit rating by the various rating agencies from AAA to something probably lower.

Somehow deep inside me, I know that the US debt crisis is actually a time bomb waiting to occur. There must be seriously a lot of wastage in terms of public spending when a government starts to rely on debt to finance its spending.

I wonder what will the impact and how the markets will look like in the near future with the less than optimistic forecasts ahead. Dark clouds perhaps?

$790 Dividends for March 2011

March 2011 is gone. April is here. A new month. Collected almost $800 worth of dividends for March 2011. That has perhaps been my highest thus far for the year. Have been looking to add more dividend stocks lately but also wary about the market conditions now.

I have been toying with this concept for the longest time but have always put it off and procrastinated. What happens if I manage to invest a large percentage of my monthly salary into REITs or dividend paying stocks and then reinvest the dividends that I receive? Will I become financially free within 10 years?

HDB Home Value Will Not Go Down

After contemplating on the option to buy a 2nd property or invest in real estate investment trust (REITs), I have more or less come to a conclusion that investing in REITs is perhaps the more viable option for me now. And that is the reason that I bought some AIMSAMP REITs into my portfolio recently.

I was also heartened to read the news today where Minister Mentor Lee Kuan Yew opined that since 85% of Singaporeans lived in HDB flats, the government would strive to make HDB homes the most valuable possession they own. In his words:

"85% of Singaporeans are living in HDB flats and we intend to keep the values of these homes up. It will never go down."

This was spoken as the MP for Tanjong Pagar GRC announced the 5 year master plan for Tanjong Pagar which includes upgrading programmes. Since I live in a HDB flat, I am glad that the government is committed to making the value of my home rise. In fact, I am glad that I am an owner of a HDB flat as I have witnessed the value of my home increase significantly over the years.

Bought AIMSAMP REIT

Just entered into AIMSAMP REIT. It is a REIT that nearly went bankrupt during the financial crisis. After asking for some advice on whether to buy a 2nd property or just invest in REITs, I think I pretty much know the answer.

I don't earn enough and have enough savings to buy a 2nd property just yet. Thus, the only option is for me to invest through a real estate investment trust (REIT). The benefit of investing in REITs instead of a direct property investment is that I do not need to invest a large sum of money and I also do not need to take on additional debt which banks will not lend to me (since I earn too little).

Buy a 2nd Property or Buy REITs?

Should one buy a 2nd property or invest in Real Estate Investment Trusts? I have been thinking about this for sometime. The minimum occupation period for my HDB flat is almost up. That means that I can actually sell my flat in the open market pretty soon. At the same time, I really love the place where I am staying at now. So it is going to be a tough decision.

The remaining mortgage on the HDB flat is now $238,000. Market value based on a similar size flat sold at the opposite block is estimated at $600,000. Bought the flat for slightly over $300,000. Currently monthly mortgage loan is $1096. Right now, I have been thinking about the following few options. Family's gross monthly income is around $5600 (really average!).

Option 1 - Sell the HDB and Buy a Private Property

This will mean selling the HDB flat, giving it up and buying a new private property. It is going to be difficult as I will have to buy a private property that is less than $1mil I guess. If I can only take 35% loan based on family's gross monthly salary, that means the maximum monthly mortgage loan that we afford is around $1900+. As we are still paying for the car we bought, it probably means that we can only afford a mortgage loan of around $1,400. I don't think the banks will be willing to land us to much. I figure that means we can only borrow around $350k (pls correct me if I am wrong). Selling the HDB and buying a private property also means that this does not count as my 2nd property and I am not obligated to set aside the 50% minimum sum in both my wife's and my CPF account. We can probably use the gains from selling the HDB to pay for the private property.

End of the day: I am probably saddled with more debt but have effectively upgraded to a more expensive property. There will be less money to spend as I have to pay more each month for mortgage.

Option 2 - Keep HDB flat, Buy a Private Property to rent out.

This is option 2 which I have been thinking about and which I am leaning towards. But it seems almost impossible to do this. This is because of the following reasons:

1. No money in CPF-OA to pay for it. Will have to use all cash to pay for the downpayment. Even if all assets (stocks + bank accounts) are liquidated, I figure that we only have slightly over $220k. Not too sure how much the bank will actually lend us for the 2nd property but I guess it is around 60-70%.

2. Will also have to rely on cash to pay for the monthly mortgage. That is impossible considering that existing HDB loan is already $1096. It means I can only get around $800 per month more in mortgage loan. Will also have to repay off the car loan so that I can borrow the $800 per month more in mortgage loan for the 2nd property. That leaves very little options for me as I won't be able to find such a cheap property that only costs $800 per month!

Option 3 - Keep HDB and Buy REITs.

REITs are easily liquidated. I also collect dividends. This seems to be a very feasible option with little downside.

Option 4 - Sell HDB and Buy 2 Pte Property

Lately, I came across this strategy which advised to sell 1 property and buy 2 properties. In this manner, you can rent out 1 and stay in the other. Not too sure whether this strategy will work at all cos it will probably mean that I have to buy 2 really small pte property.

Wise folks out there. Any advice on all the options???

Dividends for March 2011

Received dividends from a few of the REITs that I have been holding. Total amount of dividends collected adds up to $278. Not really a lot. But guess it is better than nothing.

Have been pretty weary the past few weeks. Running about and busying myself with things that do not really matter. But they still need to be done. Weekends always seem to come and go so fast. And then the new week comes. Hardly feel rested at all.

Week after week just seems to pass and it does not seem that much has been accomplished. Already, we are into the 3rd month of 2011 but I don't really have a clearer picture of where I am actually headed in life. It is really just living day by day and week by week.

First REIT again?

I have been monitoring First REIT for sometime after exiting it for a tidy profit a while back. First REITs had been consistently giving out good dividends. Its yield was relatively high compared to the other REITs and it also had a very low gearing of 15%. During the recession, the price dipped quite a bit but slowly recovered and I decided to lock in some profits and sold my entire stake in it.

The reasons for exiting it are mainly twofold. While it is a healthcare REIT, it does not really have a parent company to back it up. That is unless u consider Lippo to be its parent. The other thing that weighs heavily on my mind is that majority of its assets are based in Indonesia. There are thus country risks involved. And that is perhaps the reason why it is trading at a seemingly more attractive valuation than the other REITs counters. Personally, I did not want to hold something that was overly exposed and narrowly focused. And that was why I decided to exit it. A stock is cheap for certain reasons and the same applies to First REIT. It reminds me a bit of various s-chip shares I had held over the years because it was cheap when compared to its peers. Remember Unifood and Pfood?

The decision I took then was to start investing in blue chip companies and avoid stocks that were of a higher risk. And that will remain my strategy at least for the time being. I hope to liquidate my small cap stocks slowly and transfer them to bigger and better blue chips. Of course, we are in the midst of an expansion right now so I will perhaps wait a little longer before I start refocusing my efforts.

Though I was tempted to enter into First REiT recently, I shall resist it for the moment.