You may be wondering what it looks like to fund real estate? Is it important for you to look into creative ways to diversify your investments and investment portfolio?Â
Unless you want to become a landlord or attempt to learn how to flip homes, real estate investment in the form of funding may be a great choice for you.
Real Estate Funding is a type of mutual fund that invests in securities offered by public real estate companies, including Real Estate Investment Trusts (also known as REITs). REITs pay out regular dividends, while real estate funds provide value through appreciation NOT depreciation.
To understand what a real estate fund is, you first want to be informed on how a mutual fund works. In the simplest terms, a mutual fund is a single collection of several different investments. For example, a fund may own a mix of stocks and bonds, or track the stocks in a particular index, such as the S&P 500 or the Dow Jones Industrial average.
Funding in real estate works very similarly, with the exception of the investments being in real estate (either directly or indirectly). Real Estate Funding may own individual commercial properties, for instance, or invest in a collection of properties (imagine hotels and shopping malls). Real Estate Funding can also be invested in REITs.
Funds for real estate can also be structured differently. They are almost always closed-end funds. With closed-end funds, they cannot be reinvested in the fund once the investment is actually sold.
There are two types of funding for real estate. One is open-ended and the other is closed-ended. An open-end fund allows you to enter or leave the fund as long as it remains active. A closed-end fund typically has ONE entry point and ONE exit point; you have to invest within a certain time window and, once invested, you cannot leave the fund until it’s gone through its natural life cycle.
There are a couple of ways to manage to fund real estate. It can either be passively or actively managed. Passive investment strategies typically mimic the performance of an underlying index. An example of this would be the Vanguard Real Estate Index Fund (VGSIX).Â
An actively managed investment strategy, on the other hand, has a fund manager overseeing the buying and selling of the underlying assets within the fund. Actively managed investment strategies focus on beating the performance of an underlying index instead of just matching it. An example of this is The Cohen & Steers Global Realty Shares Fund (CSFAX). This strategy focuses on driving investor returns.
Benefits of Real Estate Funding
Now that you’ve learned about what funding for real estate is about, there are several benefits to sourcing those funds. Many of the benefits have to do with creating your financial stability and security, which is really important especially in an uncertain economy that we are experiencing right now.Â
Benefits of funding in real estate include, and is not limited to, the following:
- An opportunity to create equity for your future
- An opportunity to protect yourself against inflation
- An opportunity to create regular consistent income and cash flow
- An opportunity to create passive income
- An opportunity to impact a large community that you care about
- An opportunity to diversity your financial portfolio
- An opportunity to quality for tax advantages
- An opportunity to get a new house or even a vacation home out of it
- An opportunity to generate wealth from owning a property
- An opportunity to maximize your earning potential
- And much more…
There are so many ways and methods of starting your own funding for real estate. Some of these options include things like: diversifying your funding resources, expanding your funding resources, diversifying holdings, investing in higher quality and larger projects, obtaining better terms and rates from lending institutions such as banks and other lenders, and creating projects using fund level types of financing instead of the project by project financing.Â
You want to consider this. There are also some risks to not properly find an expert who is knowledgeable with funding in the real estate world. One of the biggest drawbacks is that it can be time-consuming. We know you’re busy and have a busy schedule so saving time is KEY. Another drawback is you could lose liquidity.Â
Not personally having a large starting capital is also another drawback. A way to navigate this is to partner with a trusted partner who can guide you through various funding options that are BEST tailored to your needs.
Do you want to learn more about which real estate funding option is BEST for you and your goals? We’re here and happy to help. Give Real Estate Funding Solutions a call at 1-855-913-8637 for a FREE consultation.