When working in a high-paying job, you are sure to have an array of personal investment aspirations for a secure future. You might be willing to invest in real estate, which is tax-efficient or diversified from your current stock portfolio. Real estate funds are the ideal solution to achieve your investment goals.
Once you decide to invest in real estate funds, you give the control of selecting potential deals to an experienced fund manager. A disciplined fund manager should be concerned about the two most important real estate fund regulatory requirements.
However, the fund structure, the investment types, and the applicable regulatory exemptions are crucial to answer their apprehensions. Here are a few key aspects that will help you assess the offerings of real estate funds.
What Are Real Estate Funds?
The real estate funds focus on investing in securities that public real estate companies offer, providing value through appreciation.
There are open-end and closed-end real estate funds that you can either actively or passively manage. The fund managers oversee the buying and selling of the assets within the fund.
How Do Real Estate Funds Work
Real estate funds aim for a steady valuation of capital invested in real estate, by the fund contributors. The income from the property lease accounts for a significant share of the fund yield. Besides, the increasing market value of the real estate possessions also contributes to the fund earnings.
Real estate funds invest heavily in the tangible assets that are easily valued. While a small share goes into investment in financial assets, that can become liquid faster, making the payout of buying stakeholders feasible.
The smaller private real estate funds, at times, generate more significant returns by taking advantage of the inefficiency in the private markets.
Investment Company Act
This Act regulates the organization of companies like real estate funds that engage in investing, trading in securities, and their securities offered to the public investors.
Since most real estate funds do not invest in securities, they are not in line with the definition of an investment company and neither need to register nor rely on any exemptions.
Investment Advisers Act
An investment adviser offers consultation to investors, limiting to securities. The advisor received compensation in the form of management fees and promoted interest.
A fund manager ideally meets the requirement of compensation. However, most of them do not meet the second half of the definition. The investments the fund makes are usually not securities. Thus, a fund manager is not an investment adviser and wholly exempted from registration as one.
An experienced fund manager should be aware of the exemptions from the two most important real estate fund regulatory requirements regarding real estate funds.
Benefits of Real Estate Funds
Real estate funds offer the opportunity to diversify your capital, purchasing different types of assets in various markets. With diversification, you can employ different investment strategies, reduce risks, and have higher returns. Also, as a passive investor in real estate funds, you can enjoy additional tax benefits.
A reputed real estate fund manager will have a strong real estate background, understand investment strategies, and choose the right markets. Invest in the right real estate funds to have investments that generate steady cash flow, ensuring you achieve your long-term financial targets.