If you want to invest in real estate, you’ll have many different options. If you have enough capital at your disposal, you may choose to enter the market as an individual investor.
There are many individuals who still manage to invest in several real estate properties without having a large amount of personal capital. They do this by investing via a fund.
How do investment funds that are focused on real estate work?
A real estate investment fund pools money from different investors. That money is then used to make investments in real estate.
If you put money into a fund of this nature you’ll benefit from diversification. Since your money is placed in many different properties, even if one decreases in value, it’s likely to be balanced by gains in other areas.
A real estate investment vehicle of this nature doesn’t usually pay dividends to its members. Instead, members gain a profit through capital appreciation. These funds can be categorized as real estate mutual funds, real estate exchange traded funds and real estate private equity funds.
Real Estate Mutual Fund
A real estate mutual fund is an investment vehicle that’s managed by professionals. It has some similarities to a mutual fund that’s focused on stocks.
The money from real estate mutual funds is invested in different types of real estate properties. You can usually enter this type of fund via your investment advisor. If you have a small amount of capital but want to invest in real estate, this is usually a good option because it’s professionally managed.
Real Estate Exchange Traded Funds
Real estate exchange traded funds or real estate ETFs are a passively managed option. Real estate ETFs track an underlying index and they’re traded on major stock exchanges. The lowest possible investment required to enter a real estate ETF is far less than that required for mutual funds and this is what makes it attractive to investors who don’t have a lot of money but want to start growing their portfolio.
Real Estate Private Equity Funds
Real estate private equity funds are actively managed. These funds manage money for clients who have high net worth. They also manage funds for institutions.
Unlike real estate mutual funds, real estate private equity funds are not usually available to the general public. You’ll have to be an accredited investor or an institution with a significant amount of money to invest. In fact, managers of private funds usually approach high net worth individuals and institutions that they feel would be a good match for their products.
