"Lazy, why dont you buy a property instead of investing in REITs?"

I started buying my first REITs about 5 years ago because I heard so much about the wonders of passive income. Just park your money there and you get 6-7% back every year. I didnt do much research but instead bought a few books to read on REITs and properties ( By Ku Swee Yong, in fact i have all his published books). With that, i was on my way. The first few REITs purchased were retail REITs that have shopping centres familiar to me. CMT, Suntec, MCT and Starhill Global. REITs do have tangible assets, just that you cannot sleep in them(my reply to another fellow blogger's post), but you can shop in them! To me, the number 1 rule of investment is to buy what you understand, thus retail REITs are easy to understand. You go to the shopping centres, have a look to see hows the shopper traffic, is there a big crowd constantly? Look at the tenant mix, is it something that appeal to the crowd? Does it have events and activities to attract crowds? It's not rocket science. 

The reason of this post was because of a recent gathering with a group of friends. Everyone was talking about how they want to buy a second property, how to decouple ( Cant decouple anymore for HDB), to have a passive income renting properties out. Everyone except for lazy, lazy was just lazing in 1 corner sipping his drinks and watching the world goes by. Then suddenly everyone stopped discussing about property and change their attention to me.

Friends : Lazy, why you look so sian? 

Lazy: Oh no lah, property buying is not for me, at least not now.

Friends: Why? Must have passive income mah..

Lazy: yeah, i invest in REITs, that gives me 6-7% per year. Im quite happy with it.

Friends: Dont know about REITs but we think property is the way to go, and can earn more as well.

Lazy: ok loh..good luck! 

You see, they have been talking about buying properties for the last few years, but no one actually went about to buy 1 because of the high initial outlay and the unstable global economy. The above conversation was the crux, but i did try to tell them there's an alternate way of "owning" properties and get passive income as well, but i guess it fell on deaf ears. 

I was thinking about the statement "property is the way to go, and can earn more as well". Is this true? So i went to my spreadsheet and starts typing away to make a comparison. I realised alot of people including my friends merely talk about collecting rents ( also mentioned by a fellow blogger), but what about the following?

1. Property Tax - 10% for the first 30k

2. Income Tax - Another 10% perhaps depending on which bracket and the amount of rebates

3. Mortgage Interest

4. Early loan Redemption penalty - Not very sure if still relevant for loans nowadays

And also to buy the property, its not just the property price, what about the following?

1. Buyer Stamp Duty

2. Mortgage Stamp Duty

3. Valuation of Property

4. Legal fee

With all the cost adding up, you may not even have a net income from your property from the rent. My friends will reply to say that but end of the day, the property belongs to you. It is true, only if you can last that long. What if our jobs become irrelevant? What if there is another major recession like the 2008 one? What if you have a baby and the wife prefers to become a SAHM? 

The best scenario is to sell the house with a capital appreciation. When that comes along, how much more do you think you can sell it for? From 2008, till now, perhaps you can make a 100% profit but only if you have the balls to buy those properties when the whole world was crumbling apart. The common men i know on the streets do not have balls of steel for sure.

From the spreadsheet, i assumed i purchased a 1.1m property and hold it for 10 years, and at the end of 10 years, i managed to sell it with 25% profit and fully lease out for 10 years. The alternate scenario was to use the initial capital outlay to go into REITs and then dabble into Margin trading. I assume the portfolio growth of 6.5%, not considering any capital appreciation at all.

The profit for property buying is 40k more than investing in REITs. Is it enough to warrant a risk for me to go into buying a property? The truth is my dividend portfolio has been giving me constant performance and minimal worries, and i do not have to worry about servicing my loan if i lose my job. 

Thus, to answer my friends, yeah thats why i prefer to stay invested in REITs, as it allows me to be lazy and not worry about my next pay cheque to pay the mortgage. I guess, whatever that floats your boat, do the thing that allows you to sleep soundly at night. That's the most important.