A real estate fund is required to distribute the majority of its taxable income to shareholders. Real estate funds are subject to a special tax structure in which profits are not directly taxed. If a real estate fund distributes 90% of its profits in dividends, it does not have to pay corporate income tax. This explains the high returns that these funds offer. Dividend yields of 5% to more than 10% are not uncommon and make investing in real estate funds an attractive choice. For our Spanish readers we would like to advice you to read the following article about trading: ¿Cuáles son los costos de los Forex broker en Colombia?
Real estate funds make it possible for regular investors to invest in real estate in an easily accessible way. Where you need at least €20,000 for a direct real estate investment you can join a real estate fund with a small amount. So you do not need large equity. Another advantage is that you do not need any specific real estate knowledge.
- Real estate funds are managed by professionals with good knowledge of the market, making it a simple and accessible way of investing. The chance that you will achieve better results with a real estate fund than with your own real estate investment is therefore considerable. Another advantage is that you can get in or out at any time.
- When you invest directly in real estate this is by no means always the case. If, for example, things go less well on the market, then you have often not just sold a property. Finally, the large shortage of private real estate makes investing in real estate funds a lot more accessible than a direct real estate investment where there is a lot of time pressure and competition.
A real estate fund requires a minimum number of shareholders. For example, a real estate fund may require a minimum of 100 shareholders for a period of, say, 335 days of a taxable year. This ensures a constant flow of income and benefits stability.
- In addition, the prices of real estate funds are generally quite stable because the underlying asset (real estate) is quite stable. This makes these funds a reasonably safe way to invest, although of course you never have the guarantee that this will continue to be the case. It is therefore important to keep a critical eye on the real estate market, the management of the real estate fund and any business risks.
Predictable value increase in the long term
The gross income of a real estate fund must come from the rent or sale of real estate for a minimum percentage. A real estate fund is obligated to transfer most of its cash flow to its shareholders. Because the developments in the real estate market are fairly easy to estimate, there is usually a growing and predictable increase in the value of real estate funds in the long term.
The right consideration for the type of real estate fund in which you invest will benefit the diversification of your portfolio. This reduces volatility and therefore risks. There are real estate funds that are spread across different sectors and/or locations. There are also real estate funds that focus on a certain sector or location.
The advantage of investing in a real estate fund that is more focused on one particular sector or location is that the professionals who manage the real estate fund often have very specific knowledge of this sector, which can benefit the returns. This can be interesting if you plan to invest in multiple real estate funds and focus per fund on other sectors and/or locations. If you first want to focus on one real estate fund it can be interesting to go for a fund that focuses on multiple sectors/locations like in España.
A good hedge against inflation
When prices rise, the rents and values of real estate usually go up as well. This is partly due to the fact that many leases are linked to inflation. This supports the growth of the REIT dividend. As a result, real estate funds offer a reasonably reliable income stream even in times of inflation. In other words, real estate offers fairly good protection against monetary devaluation, which makes investing in real estate funds attractive.
If you add up all the advantages of investing in real estate funds, you can conclude that real estate funds, unlike direct real estate investments, are more liquid. After all, you can sell a REIT from one day to the next. If the market is less liquid, it is almost impossible to sell it directly in the case of your own property. This makes REITs very suitable for short and medium term speculation. Liquidity also makes investing in real estate funds attractive and accessible to regulators.