Real estate funds: what are they and how do you invest in them?
Investing can be done in many different ways, there is something for everyone. For example, you can choose to invest in shares , speculate on price movements with derivatives or invest in real estate funds. Investing in real estate is incredibly popular, via a fund you can indirectly invest money in real estate. You have the choice between a non-listed real estate fund or a listed fund. In this blog you can read everything you need to know about investing in real estate funds
What is a real estate fund?
Investing in real estate can be done by investing in a real estate fund, but what exactly is a real estate fund? A real estate fund is an investment fund that contains shares in companies that are involved in real estate, such as rental/sale of homes, offices or shopping centres.
A real estate fund has advantages over investing directly in real estate. You can invest in real estate without the responsibility and burden of owning real estate. This way, you do not have to have a very high deposit right away and maintenance of the home is arranged.
There are different real estate funds. For example, you have real estate funds that specifically focus on a certain type of property (homes or shopping centers) or on a certain sector. Do you want to invest in a real estate fund? Then find out which real estate fund suits your needs.
Investing in a real estate fund: what is it?
When you invest in a real estate fund, you buy a share in that fund. With the contribution of the investors in the fund, the fund can finance the construction or purchase of, for example, homes. As an investor, you often have no say, so you cannot choose what the money is spent on. However, you do receive a share of the profit if the fund earns money. This part of the profit that you receive is called dividend.
Listed or closed real estate funds
When investing in a real estate fund, you also have the choice to do this via a listed or closed fund. You can read the differences between these below.
Listed real estate funds
Listed real estate funds are, as the name suggests, listed. They can therefore be purchased via the stock exchange and are therefore public. Listed real estate funds are often large in size and the investment is relatively low. Because the fund is publicly tradable, the liquidity is high. You can easily sell your share in the fund.
Closed real estate funds
With a closed real estate you cannot simply purchase the real estate fund. A closed real estate fund is closed for a select group of people, it is, as it were, between listed funds and directly purchasing real estate yourself.
What are the risks of investing in real estate funds?
Just like other forms of investing, investing in a real estate fund can entail risks. One of the main risks is that you cannot simply withdraw from the real estate investment, with the exception of listed real estate funds. You usually fix your investment for a longer period of time. In addition, the value of real estate can fluctuate greatly. For example, falling rents or vacancies can cause your real estate to lose a lot of value. It is difficult for the average investor to assess the quality of the real estate in which an investment is made. It is also not easy to determine whether a fair price is being asked or paid for the real estate.
Real estate funds mainly use borrowed money from the bank, which makes investments in non-listed real estate extra risky. The value of your investment decreases more quickly when money is borrowed as soon as the value of the real estate decreases. Does the interest on the borrowed money increase? Then the fund incurs higher costs, which is at the expense of the profit. This is also the case with indirect investments in real estate where underlying funds use borrowed money.
What are the advantages of investing in real estate funds?
Investing in a real estate fund involves risks, but there are also a number of major advantages to investing in this way.
Protection against inflation
One of the main advantages of investing in real estate is that you get protection against inflation. In addition, investing in real estate funds can yield a higher return than other investments. Especially compared to the savings interest, investing in real estate is a good option.
Distribution of assets
A real estate fund spreads over multiple properties and with this way of investing you are not putting all your eggs in one basket. The money of multiple investors is pooled in the fund. This gives you a good spread for a relatively small investment. This reduces the risk you run. Those who have enough time, money and knowledge can also consider purchasing properties themselves as an investment. However, there is more to this than just the purchase. For example, you are responsible for the selection, maintenance and management of the property. By investing through a real estate fund, you invest in a diversified real estate portfolio where you do not have to worry about the management and maintenance of the properties.
Benefit immediately
You usually receive a dividend when you invest in a real estate fund. This return is partly derived from the income from renting out properties. Real estate funds therefore receive money monthly and this monthly rental income is often also paid out monthly. As an investor, you therefore profit from your investment quite quickly. Are you looking for a new purpose for your savings? Then investing in a real estate fund can be a good way to achieve a higher return.
Return on real estate funds
Real estate companies often use a fairly high dividend payout. If the real estate companies make a profit, you as an investor benefit from this. You can also achieve a return on a listed real estate fund through price gains.
Not sure what dividends and capital gains mean? Read more in our articles on dividends and capital gains.
The best real estate funds
Are you enthusiastic about real estate funds and do you want to start investing? Then you are faced with the choice: which real estate fund?
To find the best real estate funds, there are a few factors that are interesting to keep an eye on:
- The quality of the selection of real estate companies within the fund
- The costs incurred by the fund managers
A well-known example of a Dutch real estate fund is:
- Kempen Global Property Fund Index Fund N.V. (KGPFN/NL0012044739)
Start investing in a real estate fund
With every investment there are risks involved, and so do real estate funds. There are various real estate funds available, each with their own advantages and disadvantages. Think carefully about what kind of real estate fund you want. For example: do you want a real estate fund that focuses on homes or offices? Consider what you want and do your research in advance.
If you want to invest in listed real estate funds, you can do so via an online broker. Our tool makes it easy to compare brokers, so you can quickly start investing.
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