But there's an easier alternative of course. Outsource it! Let someone else manage it, and you are effectively engaging them to do it for you. Of course they take a cut, but you still get rental returns. With just one property, there's however no economy of scale. So the overheads involved can be high.
And then we have REITs. Effectively the same thing after all, but with the property manager handling multiple properties, collecting rents, while maintaining the properties. It's diversification.
I'm quite for REITs, particularly as they can serve to generate an income stream. It's not without risks though. There will be times when they raise funds from shareholders to fund some acquisitions. Each time they do so, they could very well be collecting whatever income they paid out!
And then, we now have the Phillip APAC Dividend Leaders REIT ETF. So we can own a slice of multiple REITs even! But I have some doubts if it's worth the while right now.
- With an estimated yield of 5% dividends, its 0.5% management fee would drive it down to ~4.5% yield. I would expect to get 5-7% yield on typical REITs. So getting below 5% seems like a letdown.
- Significant chunks of the REITs are non-Singapore based. While that offers country diversification, it comes with a foreign exchange risk.
- And finally, it is a dividend-weighted ETF. If I understand it right, that means high-yielding REITs dominate. My sense is that a high-yielding REIT is not necessarily a good thing. Examine the local REITs and you can see that those yielding above 7% tends to be the ones whose total returns are huge negatives!
For now, I will keep to buying individual local REITs that are backed by parents with the muscle to provide a pipeline of properties to feed them. Capitaland, Ascendas, Mapletree. There are enough choices.
Reaping property incomes without owning any single property nor servicing any loans. I like.