How to earn passive income from REITs

Most often than not, people are lazy to get started learning about investments but know the importance of saving for the long term. 

Thus, many of them usually put their hard-earned money into safe instruments like bank deposits, fixed income; with insurance being the most commonly utilized to grow their wealth.

While they are generally safe, the returns they offer are so little that you cannot even cover the inflation rate of 4% in Singapore! As a result, many people have flocked to the world of REITs, known as Real Estate Investment Trusts, for higher returns. They offer distribution yields averaging 6% with the highest reaching almost 10%!

What is a REIT?

A REIT is a company that mainly owns, and in most cases, operates income-producing real estate such as apartments, shopping centers, offices, hotels and warehouses. Some REITs also engage in financing real estate. The shares of many REITs are traded on major stock exchanges.

To qualify as a REIT, a company must have most of its assets and income tied to real estate investment and must distribute at least 90 percent of its taxable income to its shareholders annually. A company that qualifies as a REIT is permitted to deduct dividends paid to its shareholders from its corporate taxable income. 

As a result, shareholders of REITs are usually entitled to stable distributions as REITs have to honour this tax preferential treatment which do not require them to pay income tax.

Why are REITs so popular?

• The first thing why people look at REITs is usually because of its steady distribution yield.
  It is even more so for semi to full retirees like my dad. The picture on the right shows the annual reports he received from owning them.
  
  Heeding my advice, he bought into many REITs on the aftermath of the U.S. subprime crisis, and sits on some multi-bagger capital gains and juicy dividend yields based on the low share prices when the purchases were made.
  
• No Hassle. People may ask why they should buy REITs instead of property. The main point is this, when you buy property, you will need to rent out it. Having disastrous tenants may offer you the worst nightmare. On the other hand, when you buy REITs, you are taking advantage of the experts to handle everything there can be.

In my next article, I will touch on how to choose the right REIT that fits you as well as explaining the different types of REITs. Hope you like my post! You can receive more regular updates by "Like"-ing my facebook page at www.facebook.com/kissinvesting. Thanks & HUAT AH!