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REIT vs. Direct Ownership

23-8-2018 | Space Recce

REIT vs. Direct Ownership

Putting resources into a Real Estate Investment Trust (REIT) is a prominent method to "enhance" into Industrial and Commercial real estate. Some investors might be mistaken buying into REIT as owning part of the higher value Industrial and Commercial Real Estate. However when you put resources into a REIT you don't really possess those Industrial and Commercial property. You instead claim an offer of stock in an organization.


For some not so savvy investors, Reit can be a good investment option as:
- its relatively lower entry fee versus the hefty down payment of direct property ownership
- investor can choose a bite size investment or pour the lifetime saving
- stable (although lower)  and relatively foreseeable return
- no need to worry about getting tenants
- no need to pay agent’s fee to rent out the property
- no need to worry about the maintenance and repair

However, it is all rosy to owned REIT? Here are 5 reasons you can improve the situation with direct ownership:

High Fees

A private REIT can energize to 17% in advance before your speculation even touches the land. A current REIT plan revealed the accompanying charges:
- deals commissions ~6.5%
- merchant director fee ~3.5%
- association and offering expenses ~2.42%
- procurement fees ~1.75%
- securing expenses ~0.96%

This represent that for each $100 you contributed, under $85 really went towards the Industrial and Commercial Properties! Furthermore, a REIT is just required to appropriate 90% of the pay created by its properties back to financial specialists. This will fundamentally bringing down general returns.

Lower Average Returns

The normal traded on an open market Real Estate Investment Trust profit is 3.4%. This is lower than normal comes back from direct Industrial and Commercial property ownership. Numerous individual properties can convey a yearly money return of at least 6%.

Instability

Real Estate Investment Trust shares are stocks exchanged the stock trade.  REITs are liable to the high volatility and market movements of the stock exchange all in all.

Absence of Control

The REIT structure is intended to give a venture like what common assets accommodate stock contributing. In spite of the fact that there is an assorted variety of benefits, there is additionally an absence of control over which resources are being acquired. Similarly the same number of financial specialists has control of putting resources into singular stocks on stages. The REIT holder will not be able to take advantage of capital appreciation when the real estate market is moving north.

Potentially fatter investment returns

Like any investment, the more money you invest, the more money you can earn. A $1 million  property will earn more than the $10,000 that you invest in REIT. Other than rent return, direct owner can also gain from the capital appreciation when the property is still in mortgage. You may contact Space Recce for us to do a demonstration on capital gain model with outstanding mortgage.


Singapore Industrial and Commercial Property market is on the upswing again thanks to the new Additional Buyer Stamp Duty (ABSD). It really depends your risk appetite and expected return of investment for you to choose a REIT or through direct investment.

Space Recce is fully committed to delivering a Corporate Real Estate solution, with enthusiasm and dedication, providing added value through a focused, thorough and systematic approach.

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