Real estate fund

A real estate fund is a fund that holds diversified properties within a portfolio that is managed by a team of experienced professionals. Typically real estate funds invest in commercial real estate like multifamily units, industrial buildings, office spaces, retail stores and occasionally residential property investments. A real estate fund allows small investors to earn a profit or high yield on large commercial real estate assets that they would not typically be able to receive alone. This type of fund money is pooled for investors to purchase securities. A real estate secured fund must be registered with the Securities and Exchange Commission (SEC).

History

Historically real estate funds performances have stayed consistent with the mainstream economic climate. Unlike other traditional investments during periods of inflation and economic growth, real estate will typically yield high returns. Real estate funds have been out performing bonds, CDs, and the STOCK market since the early 1970s. The residential and commercial real estate sector has experienced periods of expansion and contraction not unlike all of the other sectors in the economy. A rate of 8.5-12% annual return for investors must be achieved before the fund’s management team receives any payment.

Investments

Real estate funds offer the same sort of benefits you would see with mutual funds, for example portfolio diversification and a professional management team that oversees all aspects of the fund. Diversification is a key characteristic that makes a real estate fund unique because a majority of investors do not have the necessary asset base to participate in this type of commercial real estate investment directly. Unlike the stock market where individuals have the option to directly invest individually, but are also vulnerable to stock market volatility.

Advantages

Real estate funds rely on cash flow from properties within the fund. There is increased diversification in a real estate fund. This means the Real Estate Fund is resistant to stock market volatility and interest rate sensitivity, while also a good hedge against inflation. This type of fund plays an instrumental role in household finance strategy, most notably in retirement planning. People are finding that there stocks, bonds and annuities are not providing the returns they need to retire.

Disadvantages

Fees, limited control of property sales and purchases, and no opportunity to customize.

See also

• Private Equity Fund
• Real Estate
• Commercial Real Estate
• LLC
• Hedge Fund