Benefits and Risk of Investing in REITs

Today, I decided to compile a simple table to illustrate the benefits and risk of investing in REITs compared to direct property investment.

No.	Direct Property Investment	REITs Investment
1	Large capital required	Low capital required
2	High transaction cost	Low transaction cost
3	Self managed	Professionally managed
4	2% to 4% rental yield	4% to 8% rental yield
5	Illiquid (difficult to sell)	Liquid (easy to sell)

Table 1: Benefits of REITs

No.	Direct Property Investment	REITs Investment
1	Prices are less volatile	Prices are more volatile
2	Income frequency higher (typically monthly)	Income frequency higher (typically quarterly/half yearly)
3	Direct control and influence	No direct management control or influence

Table 2: Risk of REITs

Direct property investment is capital intensive. Large amount of cash is required for the down payment and transaction cost (eg stamp duties, legal fees, property tax…etc). Purchasing of property for most would also require a bank loan of easily 70% to 90% of the property prices.

On the other hand, investing in the right REITs can be quite affordable. Yields are also much higher yield, enabling investors to grow their capital in a shorter period of time.

On my journey towards financial freedom, I will need to invest in both! REITs will help me grow my savings sufficiently to afford the down payment of a new property!