WHEN I was young, my mother, my sister Viji and I lived at 7 off Wise Road in Rahang, Seremban. It was the first home I remember.
To enable us to live there, my mother paid RM100 a month in rent out of her salary as an English teacher. As I was born in Malacca in 1964, we must have moved into that delightfully narrow house some time in the mid- to late 1960s.
I remember that our landlady lived next door and, now that I think about it, that must have made it easy for my mother to hand over our rent money across the shared fence!
It was a modest house that my mother transformed into a wonderful home for the three of us.
Back in those days, we couldn’t afford a telephone. If the need arose, which was rare, we walked a few doors down to use the neighbour’s phone. We always left the exact amount of money for any call we made.
Growing up in Seremban in the late 1960s and most of the 1970s, I didn’t feel poor. My mother made sure we had all we needed, and I could tell that we were economically better off than many around us. Yet, at the same time, we knew we weren’t rich.
We weren’t rich enough to install a phone, we weren’t rich enough to have a car, and we certainly weren’t rich enough to own our home!
Thankfully, our landlady was sufficiently well off to own at least one house other than the one she lived in and was kind enough to allow us to live in it, in exchange for a fair rent. What was to us a safe, dry, warm, comfortable haven was, to our landlady, a cash-flow-generating piece of investment real estate.
So today, when cash streams into my bank account from the investment real estate slice of my portfolio, I am thankful that I am, either directly or indirectly, providing shelter to others. It’s a nice feeling!
Apart from brick-and-mortar property, another great way to own investment real estate is through listed REITs (real estate investment trusts) and REIT funds.
According to Investopedia (www.investopedia.com): “Investment real estate is real estate that generates income or is otherwise intended for investment purposes rather than as a primary residence.”
In the 2016 World Wealth Report, published by Capgemini, it was estimated that there were 15.4 million wealthiest individuals (accounting for 0.2 per cent of the global population) with US$1 million or more in investable assets concentrated in 17.9 per cent of their portfolios in investment real estate this year.
This compares to the 24.8 per cent they ploughed into equities; 23.5 per cent into cash; 18 per cent into fixed income, meaning bonds and bond funds; and 15.7 per cent into alts, or alternative investments, such as hedge funds, commodities, private equity and derivatives.
Our world’s population is now at 7.4 billion, and is expected to rise by almost 30 per cent to 9.6 billion in 2050. That trend alone suggests the long-term prospects for investment real estate generating healthy rental returns and potentially large capital gains are excellent.
Within my own portfolio, and in the portfolios I manage for my financial-planning clients, investment real estate often plays a sizable role in stabilising long-term returns. Toward that end, REITs have been outstanding sources of rental-derived cash inflows. If you are unfamiliar with REITs, I recommend author-investor Bobby Jayaraman’s book, Building Wealth through REITs.
In it, Jayaraman writes: “Some of the most successful investors I know are income investors, be it from stocks, REITs, property, farmland or their operating business. They have identified a good, safe and sustainable source of cash flow, and have put a significant portion of their capital in it, giving them steady returns with peace of mind.”
Clearly, investment real estate is an asset class for anyone eager to build wealth. It was steel magnate Andrew Carnegie, once the richest man in the world, who said: “Ninety (per cent) of all millionaires become so through owning real estate.”
Rajen Devadason is a Securities Commission-licensed financial planner, professional speaker and author. Read his free articles at www.FreeCoolArticles.com. He may be
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