Alternatives to real estate investment (I). Real estate mutual funds

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Although the option of directly investing in a property can be interesting, there are different associated risks that could be mitigated by looking for other investment alternatives. Directly purchasing a certain asset involves risking a significant amount of money in a single option, so we must be especially accurate in choosing the city and the area to invest in, as well as the most suitable type of property to obtain a high return through renting out. Additionally, we should add the problems associated with late payment if we are unlucky that our tenant does not meet his or her payment commitments.

One of the best alternatives for those who want to have a presence in the real estate sector in their portfolios without the need to put all their eggs in the same basket are mutual funds. This financial product lets you diversify the investment in different assets from different parts of the world at the same time with a smaller investment. In addition, it enables decision-making to be delegated to experts who have time and market knowledge. This is a considerable advantage compared to directly purchasing a property, since this means having to bet everything practically on one card and trust that the chosen asset performs well in terms of return. 

When we talk about the real estate sector, we are referring to all those assets that are suitable for undertaking an activity related to investing in homes, premises or parking spaces, among others.

One of the best alternatives for those who want to have a presence in the real estate sector in their portfolios without the need to put all their eggs in the same basket are mutual funds.

 

Investing in the real estate sector through mutual funds can be carried out in two ways: directly in funds that invest in real estate assets intended for renting out, or indirectly through real estate funds that select securities of companies in the real estate sector. There are three types of direct mutual funds: housing, free and mixed. Those related to housing, as their name indicates, are solely and exclusively intended to purchase housing. Free funds refer to mutual funds that have certain restrictions regarding their investment policy. Finally, mixed funds correspond to investments in which at least 50% of the funds contributed by investors is used to purchase homes.

The return provided by these types of funds lies primarily with leasing the properties themselves, the profit of which will be generated by the income derived from said leasing. These are long-term investments in which clients invest capital and expect to obtain a return over time. Such investments usually have much lower volatility than what we would obtain through direct investment.

A financial advisor's oversight is essential when including real estate investment and its optimal percentage in an investment portfolio.

 

The rule that governs real estate mutual funds specifies that a minimum number of properties for leasing must be acquired, and that said properties do not exceed 20% of the total amount of capital available to the fund. The investment portfolio may be made up of homes, commercial premises, parking spaces, shopping centres, offices or any other type of space intended to undertake any work or social activity with the possibility of leasing. The minimum investment period in this type of fund is four years, with exit fees if the investor decides to divest before the stipulated period.

It is essential to include investing in real estate in an investment portfolio to achieve a decorrelation between assets and, therefore, enhanced portfolio diversification. However, it is not recommended without the oversight of a financial advisor who is capable of adopting a global vision and perspective to decide the optimal percentage of desirable investment.

 

 

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