Real estate investment funds allow access to a diversified portfolio of real estate under advantageous conditions. These types of institutions channel capital flows and some of them make it possible for real estate developers to obtain the resources they need to launch their projects.
In this article we are going to show you what the objectives and investment policy of a real estate fund are, how they obtain returns and the advantages of these investment vehicles.
What are real estate investment funds?
Real estate funds are Collective Investment Institutions (IIC). That is, it is a joint asset, belonging to multiple investors, without its own legal personality and managed by a management company.
Unlike Listed Real Estate Investment Companies (SOCIMIs), the shares of a real estate investment fund are not listed on a financial market. These are two products of a different nature and with different taxation for the investor, although they both basically pursue the same objective.
SOCIMIs were born as a Spanish version of REITs (Real Estate Investment Trust) and allow anyone to invest in portfolios of real estate assets in the same way as they invest in other financial assets.
Thus, the main characteristic of this type of funds is that their objective is to invest in real estate. In this way, they become a vehicle for the public to have exposure to real estate assets.
How does a real estate fund work?
The investment policy of a real estate fund is simply to acquire real estate of an urban nature and obtain returns from it through the lease and occasionally the sale of an asset.
In this way, the profitability of investment funds comes from the rents they receive (which usually provides stable and sustained returns, although they are not fixed), plus the revaluation of the properties they keep in their portfolio.
Advantages of investing in real estate funds
The main advantage of investing in real estate investment funds is the possibility of accessing a diversified real estate portfolio with a smaller volume of capital, but in addition, we can highlight the following:
- Better market access – So to speak, an investment fund allows individual investors to access the “wholesale real estate market” (so to speak) and in different urban areas.
- Simplicity of contracting: to invest in an investment fund you simply have to subscribe to shares through the manager itself or a marketing agent.
- Transparency: these are regulated investment products, which publish the value of their assets (and therefore their shares) periodically and offer all the necessary information so that investors can make informed decisions.
- Taking advantage of economies of scale: for example, an investment fund can take out insurance against non-payment of rent more easily. The costs of real estate investment are diluted throughout the entire asset portfolio.
- Tax benefits: it is possible to transfer capital between investment funds without having to pay taxes. Furthermore, it is not necessary to declare the returns until the moment in which the units are redeemed.
Types of real estate investment funds in Spain
Basically, we can distinguish two categories of real estate funds:
- Direct real estate funds: these are those that build their portfolio with different types of real estate properties (homes, garages, industrial warehouses, buildings, shopping centers, hotels, etc.). As their name suggests, they invest directly.
- Indirect real estate funds: in this case, the fund's portfolio is made up of shares in direct and indirect real estate investment funds, SOCMIs, REITs and other types of securities related to the real estate sector.
There are also private equity funds that offer financial resources to real estate developers so that they can start their construction and sales projects.
At Alter Finance we are specialists in the management of alternative financial solutions. If you intend to start a real estate development and need funds to obtain the land, licenses or subcontracting, you can contact our team and we will study your case.