What is a real estate investment fund?
Over the years, the topic of investments has been gaining momentum in society. Nowadays, investing has become a trend, so there are more and more investment options that promise a good return to people.
One of the best known options and one that you may have heard of at some point is the real estate investment fund. So, if you are not very clear about what this investment model is all about and how it works, you are in the right place.
The real estate investment fund: definition and general aspects
When we talk about a real estate investment fund, we are referring to a way of investing collectively in real estate. In other words, the real estate investment fund places investors’ money in real estate development projects with the objective of making it profitable.
For example, financing is necessary for the construction of a real estate project. Real estate funds represent one of the easiest and most effective ways to obtain the required investment.
Generally, real estate investment funds generate the possibility of diversified investment. In other words, you can not only participate in a single project, you can make different investments in several real estate projects that are potentially profitable.
In this way, the people who are part of the investment fund obtain their profits according to their level of participation in the investment and, usually, the profitability is reflected in the medium or long term.
How a real estate investment fund works
In general, most investment funds have specialized business management. This organization is in charge of setting the terms and conditions of the investment fund.
For example, aspects such as: how long the fund will last; what are the entry and exit conditions; what is the level of risk to be assumed in the investment; what are the regulations governing the administration of the fund; what are the guarantees offered by the administrators to investors, etc., will be clarified.
Once the board or management is completely clear on the terms and conditions on which the real estate investment fund will be based, it is possible to give the green light to the investment.
Types of real estate funds
There are different types of real estate funds, as they vary according to the level of investment risk, internal rules and the number of units held. Here are the main types of real estate funds:
Rental income real estate fund
Refers to funds earned from the rental of a constructed property. For example, commercial premises, offices or homes. These tend to be the least risky funds.
These are funds that receive a long-term return. In other words, the investment is made in a project that starts with the acquisition of land to build a property and, finally, to offer it for sale.
Its risk level is moderate, however, the payback period is quite long.
Real estate investment trusts
In this case, the investment is directed to fixed income instruments in the real estate market. That is, the investment is focused on debt bonds that are intended for real estate construction, or the financing of the real estate sector.
This type of fund is riskier, although it has a very competitive advantage: it is exempt from income tax.
Real estate funds for sale and purchase
These are the funds in which administrations look for properties to buy and subsequently resell.
This type of funds are the most risky, since several mistakes can be made in case of not knowing in detail how the current market works.
In any case, real estate investment funds are a very good tool for investing, since, thanks to their diversified approach, the level of risk involved is lower than that of other types of investments.
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