Are real estate funds a sensible investment?
Would you like to invest your assets profitably and are you looking for a suitable investment opportunity at real estate companies in Dubai? Securities, funds, stocks, bonds, and ETFs – at the beginning interested investors fight their way through a downright jungle of terms to find out which type of investment is right for them. All investment options have different advantages and disadvantages. Which investment product you ultimately choose depends primarily on your personal investment goal and your willingness to take risks. One of these investment options is real estate funds. These are mutual funds that invest in one or more properties instead of stocks or bonds.
In our guide, you will find a definition of real estate funds and we will explain how they work and for which investors real estate funds can be worthwhile.
- Financial investment: Real estate funds at Real estate companies in Dubai invest on the one hand in developed and undeveloped land, commercial real estate, and heritable building rights. The other part of the investment relates to fixed-income securities or is held in the fund as cash.
- Return: The return on open-ended real estate funds is made up of rental income, the sale of the real estate, and the interest on the securities contained in the investment fund. In the case of closed-end real estate funds, on the other hand, the return is principally made up of rental income and the value development of the property.
- Risk: Real estate funds are also risky because it is not always certain that the real estate project will ultimately achieve the desired return. Closed real estate funds in particular can be very speculative.
Real estate funds – what is it?
Real estate funds are by definition investment funds that investors can use to invest in real estate at Real estate companies in Dubai – without having to buy or maintain an object themselves. The fund company bundles the money of several investors in order to use it in the real estate market. Each investor acquires a certain number of fund units, which corresponds to his share of the fund’s assets.
There are two different forms of this type of investment: open and closed real estate funds. The funds differ primarily in terms of the minimum amount that must be invested, the potential returns, the risk, and the investment horizon.
Open real estate funds
In the case of open-ended real estate funds at Real estate companies in Dubai, investors pay money into an investment fund, which is then used to buy several properties. The more investors invest their money in an open real estate fund, the greater the fund’s assets, and the fund company can acquire a correspondingly large amount of real estate. Such funds often invest in properties in different cities or countries, e.g. B. in office buildings, warehouses or other buildings used for logistics.
The capital in the fund is managed by fund management and investors can decide for themselves how many shares they want to buy or what amount they want to invest in the real estate fund. In addition, the fund’s income consists of rental income minus costs and is distributed at a specified point in time. There are also accumulating real estate funds that use the income to purchase additional properties. An issue surcharge is usually due for shares in real estate funds.
Closed real estate funds
Closed real estate funds are less popular with private investors than the open variant. With this type of fund, investors selectively invest in a small number or even only in one property. The fund management of the real estate fund collects the money from the investors, simply explained, and as soon as the required amount is reached, the fund is closed. At the same time, this means that investors will not have access to their units during this period and will not be able to make any changes to their investments until the fund has been closed.
Closed-end funds often include hotels, shopping centers or commercial properties in attractive locations. The minimum investment amount for closed real estate funds is usually more than for open real estate funds . Furthermore, this type of fund is not traded on the stock exchange and units can therefore not be returned to the issuer during the current investment period. Investors only get back the money invested when the real estate fund is liquidated by the fund company – this is usually the case when the property is sold.
How do real estate funds work?
In principle, real estate funds work like all other investment funds: The investor pays either once or continuously, e.g. B. as part of a fund savings plan, a sum in the fund. For the money, he receives shares in the fund, which in turn invests the invested capital in real estate. Investors thus become co-owners of a property or apartments in Dubai, which is evidenced by a certificate. The fund can buy, rent or sell real estate or land in order to achieve better returns. The resulting profits are distributed among the investors within the real estate fund.
The fund management decides which properties are bought or sold. The management acts according to a specific investment strategy and only selects properties that fit into the fund’s portfolio. 51 percent of the money must end real estate funds in developed and undeveloped land, building leases, or commercial apartments in Dubai real estate investing, the other 49 percent, for example, for an investment in interest-bearing securities such. B. bonds can be used.
A so-called holding period applies to investors, which means that they must hold their investment for at least two years without being able to get out beforehand. In addition, there is a redemption notice period that requires investors to give at least one year of notice that they will sell their shares. These deadlines are irrelevant for closed real estate funds, as investors cannot exit the fund before the end of the term.
What do real estate funds cost?
Real estate funds are considered an expensive form of financial investment – this applies to both open and closed real estate funds. General statements about the fees for real estate funds cannot be made, however, as the individual funds can differ quite a bit. Costs that are due in any case are the management fees of the fund management and issue surcharges. In addition, the withholding tax, solidarity surcharge and church tax must be paid on fund distributions.
How does the return on real estate funds arise?
Historically, open real estate funds at Real estate companies in Dubai bring an annual return of around 3 percent. It is made up of rental income, sales of real estate and interest on the securities contained in the fund . It is not possible to make precise statements about the return on closed-end real estate funds; it is too individual.
The return opportunities with open-ended real estate funds are higher than with classic investments such as overnight and fixed-term deposits, but the risk is accordingly too. Experts see success in terms of returns primarily in the countercyclical action of real estate funds: In weak phases of the real estate market, real estate is bought cheaply and in booming phases, properties are sold again at high prices. However, it is becoming more and more difficult to find cheap properties or apartments in Dubai that are also suitable for permanent appreciation, as the prices for real estate have risen significantly in recent years.
Advantages and disadvantages of real estate funds
Investors can benefit from numerous advantages of real estate funds, but they also have to accept the disadvantages and risks:
- Investors can participate in the real estate market without having to buy their own property and without having to bear the costs for it.
- The risk is reduced by the joint investment.
- Anyone who complements their real estate portfolio or apartments in Dubai with other investment funds will benefit from risk diversification.
- An attractive return is possible.
- There is also the risk of total and price losses with real estate funds.
- Real estate funds are associated with relatively high fees compared to the return. These are often also opaque.
- Real estate funds are not as flexible as z. B. Equity or pension funds.
- The fund management makes complete decisions about the investment and has to be given a high level of trust.
- Closed real estate funds are very speculative and rather something for more risk-averse investors.