Last updated November 17th, 2019.
Typically, investors buy physical property to either resell or rent out. Yet purchasing shares of a real estate investment trust (REIT) or property fund is a better option for many people.
In the most basic explanation possible, REITs are companies that own a portfolio of properties. You’ll own a several different pieces of income-producing real estate through holding shares in a REIT.
Investors pay a small annual fee, generally below 2% per year, toward the fund’s management expenses and upkeep.
Of course, the whole point is that you should gain back way more than a 2% management fee. Greater economies of scale, access to local expertise, along with countless hours worth of your personal time are worth the cost.
A standard REIT structure. Shareholders own the company, which in turn directly owns real estate.
Buying a Good REIT: Best Way to Invest in Property
This is an ideal setup because of two reasons. First off, REITs and funds are not only diversified, but invest in assets that require a large amount of capital like office buildings and malls as well.
Commercial properties are out of reach for small, individual investors. They offer higher rental yields in practically every major city in the world though.
Secondly, buying into a REIT or property fund removes the hassle of managing assets yourself.
A landlord must spend time looking for tenants, making repairs, and collecting the income. But shareholders of a REIT or fund can save time for other things.
It’s also worth mentioning that this same benefit helps investors diversify abroad. While buying a REIT in another country works well, owning physical property and managing it from abroad is impractical… especially if you don’t even speak the langauge of the country you’re investing in.
There are tons of different REITs and funds available all throughout the Asia-Pacific region and internationally.
Property funds are common in countries that already have developed financial sectors such as Singapore, Australia and Japan. Although you can increasingly find real estate funds in frontier and emerging markets like Thailand, Cambodia, and Malaysia too.
Most funds are rather general in nature. Yet others invest in a specific sector such as industrial commercial, or residential property.
In summary, most people are better off owning shares in a REIT, property fund, or even simply a business that owns real estate. This remains especially true when investing in less-developed frontier markets.
It’s hard to accomplish anything yourself in places like Cambodia or Vietnam unless you speak the language and have local connections. A good property fund includes that, and much more, in the package.
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