When REITs Lead To Large Losses

I would like to share this very good article from SeekingAlpha.com in regard to investing in REITs :


REITs are famous for being defensive income-producing investments.
There exists, however, a lot of landmines that can lead to massive losses.
We explore the most common reasons that lead to large losses in the REIT sector.
Finally, we present how we seek to avoid landmines at High Yield Landlord.

Generally speaking, REITs are famous for three things:

·         They pay high dividends.
·         They are defensive investments.
·         They tend to outperform in the long run:

It is then not a surprise that an estimated 80 million Americans invest in REITs through their retirement savings and other investment funds.
When you combine "lower risk" with "higher reward", you tend to get the crowd's interest and REITs have a track record of providing just that.

 ·         They generate stable cash flow through rents that are contractually guaranteed - often for many years to come.
·         They tend to be less volatile as the higher dividend yield acts as a shield against daily volatility.

Now, while REITs have helped to build many fortunes; they have occasionally also led to massive wealth destruction. Bankruptcies are rare in this sector, but there are several counts of REITs that keep dropping in value and missing dividend payments.


Closing Notes: REITs Can Be Wonderful… If You Pick The Right Ones…

REITs can be truly wonderful, but you need to know what you are doing. Unfortunately, the average investor keeps stepping on landmines and suffers from very poor performance:

image credit to J.P Morgan.com

<Link to full article: here >

Some may still vividly remember the “value destruction” on one of the “Banana Reits” listed here due to “Conflicted Management Team “ and sponsors …their value may not align with shareholders and taking advantage of asset acquisitions which are really “destructive” in value and DPU. ( # Reason 1 highlighted in this article )

“#3 Reason for Losses - New REIT IPOs and Spin-Offs

Freshly IPOed stocks have historically been poor performers. The seller generally waits for the best time to get the highest price and more often than not they may have a good reason to want to cash out. With REITs, we have found that this is especially true if the REIT was created as a result of a "Spin-off" from another entity.”
Sounds familiar or do you have similar experience in recent IPO? …..also remember the concept of " Lemon " which I have blogged about it (here ).... company/sponsor may have “information” advantage over us … i.e ( Asymmetric Information ) < from Investopedia.com>

Further reading: …..on analysing and selecting good REITs to invest.

REITs: The 3 High-Level Metrics when Picking Good Quality REITs to Purchase for Buy and Hold or Speculation <from InvstmentMoats.com>


Learn to Invest in REITs – For Beginners and Advance Investors <from InvestmetMoats.com>

How To Choose The Right REITs To Invest In? Here Are 5 Things To Lookout For. <from https://blog.seedly.sg>

Buy The Best Singapore REITs With This Complete Guide <from TheMotleyFool.com>

I have more than 40% of REIT in my portfolio and it forms a basic and very important foundation for my income-generating portfolio. Throughout the years, I have to admit that I have invested many “wrong “-for reasons or price, lousy REITs and I'm still learning how to pick a good REIT to invest. Obviously, investing in REIT is not just about the Yield and Income but many other factors which determine a good or bad REIT. One would have to be very careful to avoid the “value trap” in investing in REIT.

Cheers !! Happy REITing….and enjoy your weekend !!   :D

Quote Of The Day:

“You will notice that our major equity holdings are relatively few. We select such investments on a long-term basis, weighing the same factors as would be involved in the purchase of 100% of an operating business: (1) favourable long-term economic characteristics; (2) competent and honest management; (3) purchase price attractive when measured against the yardstick of value to a private owner; and (4) an industry with which we are familiar and whose long-term business characteristics we feel competent to judge. 

It is difficult to find investments meeting such a test, and that is one reason for our concentration of holdings. We simply can’t find one hundred different securities that conform to our investment requirements. However, we feel quite comfortable concentrating our holdings in the much smaller number, that we do identify as attractive.” Warren Buffett


  1. Good example is ricker maritime shipping trust, delisted at zero value. FSL trust trading at 5 per cent of ipo price.

    1. Yes , another good example of "value trap" ... Thanks :D

  2. perhaps its better to start with a reit etf or blue chip reits first

    1. Hi Your Ka-ki,
      Thanks for the comments, yes, indeed blue chip REITs is more stable and have reputable sponsor. If one have no time to monitor and could accept a little bit lower yield , REIT ETF might be a good option to start with as well.
      Cheers ! :D


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