The catalyst for this blog was a comment from a viewer of my YouTube channel.
“…An old video says you didn’t lose playing reit. I need your help, man. This is already starting to look a little weird.”
“I made a lot of money investing in REITs, but that was during 15 years when interest rates were almost zero. Things are really different.”
We must realize that things have changed.
I’ve blogged about how I invested over $2 million for income, and that was from the passive income I received alone.
It did not include any capital gains made over the years.
I can safely say that more than half of that $2 million in passive income was from REITs.
If we take into account the capital gains from the voluntary and involuntary sale of REITs during those 15 years, I made much more money investing in REITs.
For an ordinary Singaporean like me, this is a lot of money.
It has definitely helped me achieve FIRE more comfortably.
However, as I said, things are really different.
I’ve said this in many of the blogs I’ve posted and videos I’ve produced in the past year or so.
Rapid and large increases in interest rates have crippled the business of REITs.
In fact, it had the same effect on all risk assets, not just REITs.
In an environment where the risk-free rate is 5% or more, Mr. Market is right to demand more from REITs.
This means that the return should expand, all other things being equal.
I’ve made videos about this and I’m including them here for people who don’t follow me on YouTube:
If a REIT was generating a 5% return when the risk-free rate was almost zero, it must now be generating a return of 10% or so to be attractive.
In Singapore, if we take the recent Singapore Savings Bonds which offered an average return of 3.33% per annum for 10 years, a REIT that offered a 5% distribution yield in the past would have to offer 8.33% today to be attractive, all other things being equal.
This is just something to keep in mind and may not be a strict rule to follow for people who still believe in REITs as viable investments for income.
However, I think it makes sense to use this metric.
However, I have a feeling that people are still not as demanding as they logically should be when investing in REITs today.
Many are investing with the idea that interest rates may be cut quickly from the second half of 2024.
Investors who only started investing during years of ultra-low interest rates may think that interest rate cuts mean a return to the low interest rate environment after the global financial crisis, which lasted 15 years or so.
Investing in REITs today with such a belief can lead to disappointment.
With that in mind, I’ve also created two videos on IREIT Global before:
Finally, AK loses the money it invests in a real estate investment trust.
This might make some people chatter happily.
To me, this is just another example of how I’m not always right.
It’s only a loss at the moment but who knows how things will turn out?
Of course, we shouldn’t forget that AK is also losing money in another real estate investment trust, CapitaLand China Trust.
Things are different now and that’s why I said I’m not adding to my investments in REITs in the current environment.
Why do DBS, OCBC and UOB together make up more than 40% of my portfolio today?
If AK can talk to himself, you can too.