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Real estate funds: How future-proof are investments in real estate funds?

Under certain conditions, investing in your own property is a – relatively – safe way to invest your capital at low risk to increase its value. For those who really see real estate purely as a business (without considering personal use or other emotional sensitivities), they will soon end up looking for real estate funds when looking to expand their own portfolio.


For whom are real estate funds suitable?

Unlike investing directly in your own “income-generating property”, investing in real estate by means of funds is a purely financial transaction, usually handled by the (house) bank or a fund broker. The underlying considerations here actually have virtually nothing to do with the property or properties. They are considerations that arise in pure capital market transactions. And the most important question here is the investment risk. The answer is: Real estate funds are suitable for the more risk-averse investor. This is because it is difficult to make forecasts about the actual income on the real estate projects bundled in a fund (which account for at least 51 % of the volume; a maximum of 49 % flow into fixed-interest securities such as bonds or lie as cash assets in the fund). How lucrative developed and undeveloped plots of land, heritable building rights and commercial real estate really are in the end depends on many external factors that are difficult to assess, even with all the expert knowledge. Those who are not deterred by this, but are not afraid of a (still comparatively) manageable investment risk, must take into account fees that are not small for their return on investment calculations. With so-called “open-end real estate funds”, for example, management fees and front-end loads are incurred, which can sometimes reach up to 6 % and are therefore very expensive. Keyword “open-end real estate funds” – this is where the next question arises:


Open-end or closed-end real estate funds?

These two forms of funds differ significantly in three areas:

  • minimum investment amount,
  • potential returns
  • and the associated risk.

Due to these aspects, the open-end real estate fund is considered the “standard form of investment”. With relatively low entry sums, it enables almost everyone to enter the real estate business and profit from it. Nevertheless, the closed-end real estate fund also has its charms that make it an attractive addition to a portfolio. If you are aware of the risk and accept a number of further conditions and limitations – starting with the already mentioned higher minimum investment amount, a limitation of the maximum volume and the shares that can be sold, and ending with commitments and dissolution modalities – the experienced investor will find above-average returns with closed-end real estate funds. Because here, too, the rule is: higher risk, higher opportunity.

What is our expert advice now? Even though as an investor in a real estate fund you can count yourself among the circle of real estate owners, investing in funds has only remotely to do with the essence of the original real estate business. Although this can also be an advantage: you own real estate without other obligations and expenses associated with the maintenance and management of a property. On the other side: this form of investment is simply a variant of the capital market, with the usual “laws” of the stock exchanges and value investing, which can of course be attractive to an opportunity-seeking investor equipped with know-how because of the possible high returns. Those who want to invest their capital less volatile and rather more directly in “land” are cordially invited to have a look at our investment projects ( Perhaps this is an impetus to complement the current strategy for wealth accumulation, whether with or without ambitions for owner-occupation.