Buying and owning real estate is an investment strategy that can be both satisfying and lucrative. Unlike stock and bond investors, prospective real estate owners can use leverage to buy a property by paying a portion of the total cost up front, then paying off the balance, plus interest, over time. This is where residential real estate funds come into play.
Investing in a residential real estate fund allows you the ability to control your assets the moment papers are signed and emboldens both real estate flippers and landlords, who can, in turn, take out second mortgages on their homes in order to make down payments on additional properties.
Residential real estate funds invest primarily in real estate investment trusts (REITs) of various types. A REIT is a company that owns, develops and manages real estate properties that produce income. There are several different types of REITs, including apartment, factory outlet, health care, hotel, industrial, mortgage, office and shopping center REITs. By law, REITs have to disburse at least 90 percent of their taxable income every year to shareholders by paying them dividends. The U.S. Securities and Exchange Commission regulates REITs in the U.S. In addition to individual REITs, investors can purchase shares of exchange-traded funds or mutual funds that hold one or more REITs in their portfolios. Some portfolios in this category also invest in real estate operating companies.
REITs vs. Residential Real Estate Funds
Here’s a look at the key differences between REITs and residential real estate funds:
- REITs invest directly in real estate and own, operate, or finance income-producing properties. Real estate funds typically invest in REITs and real estate-related stocks.
- REITs trade on major exchanges the same way stocks do, and their prices fluctuate throughout the trading session. Most REITs are very liquid and trade under substantial volume. Real estate funds don’t trade like stocks and share prices are updated only once a day. You can buy a real estate fund directly from the company that created it or through an online brokerage.
- 90% of a REIT’s taxable income is paid out as dividends to shareholders, and those dividends are where investors make their money. Real estate funds provide value through appreciation, so they may not be a good choice if you want passive income or short-term profit.
Here at Real Estate Funding Solutions, we want to help you with your future real estate investments. Contact us today via email at info@realestatefundingsolutions.com or by phone at 1-855-913-8637 to get started on your investment!