Learn what real estate funds are and how you can invest in a

Investing in real estate has always been one of the most popular business ideas, especially for those with a deeper knowledge of the sector. In this article, we will talk about real estate funds and why they can be a good investment option.

Should I invest in the real estate market?

First, it is important to understand whether or not to invest in the real estate market. Effectively, if you have some capital that you want to monetize, investing in the real estate market can be a good option. To do so, it should study and familiarize itself with the sector in order to be able to analyze and interpret the main metrics.

Being aware of the financial landscape of the country is also very important, as it will allow you to know well the specificities of each city, area and street, realizing, at the same time, how the national market is inserted in the macroeconomic scenario.

If you have questions about the best areas to invest in, finding a real estate consultant near you can be a good option, since these professionals are local experts who know the local real estate market like no one else.

It should be said that all investments always have some level of associated risk. For example, on the threshold of an economic crisis, there is always the possibility of demand for properties to rent decrease and, with this, also decrease the average rental price and the profitability inherent in the business.

The good news is that real estate funds are regulated by the Securities and Exchange Commission (CMVM) and comply with specific rules that cause investment risk to be lower. These rules aim to increase the diversity of investments so that if an investment works less well, investors can be compensated by others that are doing better.

What are real estate funds?

Real estate funds are, in a very simple way, "common piggy banks" consisting of the savings of individual or legal persons. Real estate funds are autonomous assets and their purpose is, as its name implies, real estate investment.

Thus, these real estate funds are often used for real estate construction, for the purchase of residential or commercial real estate, for rental or for resale.

The great goal of real estate funds is to monetize the investment and maximize the profits obtained, which are always divided by all investors, in the same proportion of their investment.

These funds are therefore an alternative financial product to traditional individual savings (which can be made through bank deposits or through direct investment in the real estate market with the purchase of real estate).

The great advantage of real estate funds is that the savings of all investors are monitored and managed by professionals specialized in the real estate market. Those who manage the funds do not normally care about their marketing. The sole objective of the management entities of investment firms to seek the best investment opportunities to generate profits for all fund participants.

What types of real estate funds are there?

You often hear about different types of investment funds, so it is important to understand the differences between them. Basically, real estate funds can be of three types: open, closed or mixed.

Open investment funds are funds whose units exist in variable numbers, according to market demand.

Closed investment funds have a fixed and limited number of units established at the time of issue and therefore it is only possible to purchase or sell units if they are available for sale.

Finally, mixed investment funds, as its name implies, are a hybrid scheme in which there are two categories of units: one in fixed number and one in variable number.

As for the form of remuneration we can have income funds, a modality in which income is distributed to participants on a periodic basis, and capitalisation funds, where income generated by their portfolios without income distribution is automatically reinvested.

Rent a house or invest in a real estate fund?

Having said that, many people may wonder how best to invest in the real estate market: whether individually, through the rental of real estate, if they participate collectively in a real estate investment fund.

The answer is not certain and depends on several factors, such as: whether you have a financial predisposition to invest in buying a property to later rent, if you have sufficient knowledge in the real estate market to manage your investment on an individual basis and, not least, if you have time to allocate to the management of the rental of your property.

All this matters when it comes to deciding.

The great advantage of investing in real estate funds will most likely be that you can buy so-called "units", which are simply shares acquired by each investor. These shares can be purchased from a few tens of euros and result in a much more moderate level of investment when compared to buying a property that costs a few thousand euros.

Another advantage of this type of investment is the fact that, through an investment fund, you do not have to worry about taxes and other costs of acquiring a property, as well as the costs of maintaining or maintaining the properties in the portfolio.

On the other hand, the major disadvantage is that the participant has no decision-making power in the way his money is applied (since real estate funds are managed by external and independent entities).

The 5 largest real estate funds in Portugal

According to APFIPP (Portuguese Association of Investment Funds, Pensions and Assets), among the 181 funds it represents, the following real estate investment funds stand out in the Portuguese market:

• CA Growing Heritage

This open fund of Agricultural Credit, under the management of SQUARE Asset Management is, since 2018, the largest national real estate product and also the most profitable of the last decade. It is suitable for private investors, who wish to invest relatively safely in order to increase or value their assets.

• Merge

From Caixa Geral de Depósitos, The Fund invests in a diversified portfolio of properties (both segment and geography), but the properties destined for offices stand out. This was the product that valued the most in 2020 and, at the end of July 2021, it had more than 616 million euros under its management.

• Imoponing

This fund invests mostly in real estate in Portugal, predominantly in the metropolitan areas of Lisbon and Porto, favoring sectoral diversification (offices, warehouses, commerce, etc.). It has a low exposure to housing properties. At the end of July it had more than 520 million euros in its portfolio.

• Vip

It is another open investment fund that occupies the 4th position of this ranking. It has thousands of participants and, over its 30 years of existence, has performed excellently. The investment policy of the VIP Fund is diversified and is mainly aimed at offices, warehouses, commerce, industry, educational establishments, culture, tourism, health and leisure.

• Prime Value

Valor Prime, from Montepio Valor, was one of the open investment funds that valued the most in 2020 and occupies the 5th position of this ranking, according to apfipp's monthly statistical report, for July 2021. This real estate fund invests mainly in commercial real estate in the metropolitan areas of Porto and Lisbon.