What is a Real Estate Investment Fund?
Real Estate funds are funds investing in securities of a company from the real estate sector. In other words, real estate funds provide real estate companies with the necessary capital to develop a property. They have some similarities to REITs (Real Estate Investment Trusts). Both are collective sources of capital for real estate investments. However, there are some significant differences between the two. The first is REITs are companies that must distribute 90% of their taxable income to shareholders. This distribution helps maintain their tax-advantaged status with the IRS. Though, real estate funds do not have to comply with these rules. Many generate returns for their investors through capital appreciation rather than dividend payments.
What are the Types of Real Estate Investment Funds?
There are three main types of real estate funds:
Real Estate Mutual Funds:
These are professionally-managed investment vehicles. Here, a pool of investors brings money into a diversified portfolio of real estate opportunities. These opportunities include real estate companies, REITs, and direct ownership of real estate. Normally, most real estate investment funds are open to all investors, provided that they meet the minimum investment requirements. Still, online brokers or financial advisers buy most funds.
Real Estate Exchange-Traded Funds (ETFs)
ETFs are passive investing vehicles. These funds track the underlying index. This enables investors to achieve market-adjusted returns (minus expenses). ETFs are open to the public as well as trade on major stock market exchanges.
Real Estate Private Equity Funds
Actively managed and aimed at institutional investors and high-net-worth customers. Hence, most private real estate funds are available to institutional and accredited investors, not the general investing public.
What are the Benefits of Investing in a Real Estate Fund?
Here are the three advantages of using funds to invest in real estate:
Real estate funds help investors generate passive income. Apart from all the hassle of being a landlord. Unlike others, these funds are much more hands-off investments. Not requiring you to take care of the active management tasks of the properties.
Real estate investment funds offer investors broad exposure to the real estate sector. These investors generally own different property types or invest in several REITs. Diversification helps reduce risk. However, the potential for return is lower.
Lower Initial Investment Threshold
Most real estate funds generally are low initial investment thresholds. It’s typically not more than $100 for most real estate ETFs and less than $10,000 for a mutual fund. Investors receive much lower entry points compared to buying individual properties.
Real Estate Funds – A Great Option for Investors
In short, real estate funds offer broad exposure to real estate without much money. Allowing investors to passively participate in real estate investments. Hence, real estate funds are an ideal option for those just starting their real estate investing journey. Read about ways to invest in real estate in 2021.
Do you need help investing in a real estate fund? Reach out to our team firstname.lastname@example.org. Or schedule a chat with TJ Osterman, Co-founder, and CEO of MWMfund. Also, check out The MWMfund Learning Center for more educational content.
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