What are real estate funds and how to invest?

Have you ever thought about how interesting it would be to live off of rented properties without owning them and therefore not having to answer for the problems associated with them, such as condominium fees, property taxes or annoying tenants? This investment option already exists, they are Real Estate Funds. Learn all about them now!

Real Estate Funds are a variable income investment option that gives investors access to investing their resources in the real estate market with relative security. Here, the investor receives a percentage of the profits and gains obtained from the commercial exploitation of these assets.

In recent years, the number of Brazilians who have started investing in this type of portfolio has been growing every day. Investing in real estate funds has proven to be a more interesting and affordable alternative than purchasing a property and paying for costs, taxes, security, etc.

Summary of what you will see in this article:

• What are real estate funds?
• How does it work?
• What are the types of real estate funds?
• What is the profitability?
• How to analyze, choose and build a portfolio with the best FIIs
• Advantages and disadvantages of investing in real estate funds
• How to invest in real estate funds?

What are real estate funds?

Real Estate Funds, or FIIs, correspond to a class of variable income investments that raise funds from shareholders for investment in real estate market assets, such as shopping malls, hotels, logistics warehouses, industrial warehouses, office buildings, letters of credit and others.

Profits obtained from property rental or lease operations are distributed according to each shareholder's share.

Real estate fund managers manage investors' assets according to pre-defined objectives and policies. The profitability of the investments will determine the fund's value.

How does it work?

A FII is made up of thousands or millions of shares traded on the Stock Exchange for individual and corporate investors. The real estate fund buys, builds properties or invests in financial products in the real estate market with the money from the shares sold.

In this process, real estate funds are managed to promote the best possible return on capital in accordance with two policies and objectives. The returns obtained from the commercial exploitation or sale of properties linked to the fund and gains from financial investments are distributed among the shareholders according to their holdings, as well as the investment risks.

The shareholders do not, however, have any real rights over the fund's properties and are not responsible for the obligations inherent to the fund, which is the responsibility of the manager and the financial institution responsible for administration.

A real estate fund can be created to build or buy a hotel chain or an industrial warehouse, for example, and then generate several rental opportunities for these ventures, profiting from this.

A business of this size finds it easier to develop through the investment of hundreds or thousands of shareholders, rather than the allocation of resources required by a group made up of a few businesspeople.

Just as occurs in fractional market operations with shares, where smaller shares are traded, there are options for shares with a value of less than R$100.00 for investment in Real Estate Funds. Therefore, at a low cost it is possible to become a partner owner of high-value ventures in the market.

Investing in Real Estate Funds is an excellent strategy for allocating long-term resources, since the gain occurs not only in the distribution of income, but also in the appreciation of the ventures that make up the fund's assets.

What are the types of real estate funds?

Real Estate Funds are classified into four categories.

Brick backgrounds

These funds invest their assets in physical properties, such as hotels, buildings, warehouses, bank branches, etc. and their profitability comes from rental income.

Some managers invest in securities from different ventures in different regions, while others focus on just one property or a single type of asset, such as shopping malls, hospitals, industrial buildings, schools, etc. There are also those who diversify across all of these options in a portfolio.

Paper backgrounds

These are funds that invest in real estate market securities and not in real estate directly. Their investments can be made in Real Estate Credit Letters (LCI), Real Estate Receivables Certificates (CRI), Mortgage Letters (LH), Additional Construction Potential Certificates (CEPAC), shares in Credit Rights Investment Funds (FIDC) and shares issued by sectors that carry out activities permitted for real estate funds.

Funds of funds

These funds are designed to acquire shares in other FIIs to create a more diversified portfolio. Here, the real estate fund manager will analyze the best options to create the best possible portfolio and make the necessary adjustments over time.

Hybrid Funds

A hybrid fund portfolio brings together investments in the real estate segment (other real estate funds, LCIs, CRIs, among others) and in physical properties. Here too, the strategy used by the fund manager will define the most profitable combination to invest in.

What is IFIX?

The IFIX index corresponds to a simulated reference portfolio for Real Estate Fund portfolios. It works in a similar way to the Ibovespa, while B3 establishes a theoretical portfolio with the main investments of the Stock Exchange according to its own methodology. The IFIX works as a thermometer for the FIIs market.

Analysis of the assets arranged in the lIFIX list It is an interesting alternative for those who are starting out in the real estate fund market. As with Ibovespa, it is not possible to acquire the IFIX portfolio.

But it is possible, of course, to build your portfolio in a similar way. The funds that make up IFIX are updated on average 3 times a year.

What is the profitability?

The instruction 472/2008 of the CVM establishes a minimum of 95% of the accumulated net income to be distributed by real estate funds. The distribution of net income from rentals and sales of properties must be made quarterly or semi-annually. However, it is common practice in the market to pay these incomes monthly.

When analyzing the best real estate funds to invest in, monitoring the dividend yield, an index that measures the profitability of the fund's shares in relation to the value of its securities, is one of the most important points. If a FII distributes R$1.00 per share and each share costs R$1.00.00, for example, its monthly dividend yield will be 0.41.00.

Advantages and disadvantages of investing in real estate funds

The real estate fund market enables the expansion and growth of the real estate sector with an incentive in the form of profits and risk reduction among its investors. But investing in FIIs also has other advantages.

Advantages

Safe investment

The best real estate funds invest in promising developments with good tenants. To make this selection possible, they also rely on professional management that uses various criteria and analyses to manage and grow the fund's assets. If you are a small investor, the benefit here is considerable.

Ease of buying and selling

Trading FIIs takes place in a simplified and bureaucracy-free manner on any brokerage firm's platform.

Diversification

Just like when investing in shares, when analyzing real estate funds to decide on your investments, you can check a diversity of options related to different types of properties in the formation of your portfolio.

Reduced cost

We have already talked about the accessibility of purchasing FII shares, which offer options below R$100.00. However, there is another point to consider regarding the cost of this investment, which is the comparison with buying a property.

The average price of a house, apartment or other item these days is between tens and hundreds of thousands of reais, which you will often spend decades paying for.

By investing your money monthly in the purchase of FIIs for 30 years, for example, you will not only be allocating resources regularly, but also multiplying your assets if you simply reinvest the interest received.

Furthermore, if you ever need to, selling your shares is a much simpler process than selling a property.

Reduced taxes

The income obtained from investments in FIIs is exempt from Income Tax, which maximizes the gains obtained from this investment. The capital gain resulting from the appreciation of its shares, however, is not exempt.

Disadvantage

However, the disadvantage related to investing in Real Estate Funds refers to the Absence of any and all decisions regarding investments. Because, even if you are an investor who already has some knowledge of the real estate market, you will not have any room to intervene in the choices of assets traded, a function restricted to the fund manager.

How to select a portfolio composed of the best FIIs to invest in

The Real Estate Fund market has experienced unprecedented expansion in Brazil. As a result, the number of FIIs made available by the Stock Exchange has grown significantly.

Today, the securities market has hundreds of investment options in this portfolio. Before choosing where to allocate your resources, it is essential to carry out an analysis and comparison that leads to the best investment options through the following indicators.

• The quality and efficiency of the fund managers;
• The way in which the FII is managed and the transparency of the information made available to investor partners;
• The quality and location of the developments, which determines low vacancy rates;
• The extent of the fund's assets, such as the number of properties, the total area and the investment portfolio;
• Daily liquidity expressed by the volume of daily purchases and sales;
• Vacancy rate that indicates the time that properties remain rented or unoccupied;
• Knowledge of the fees charged for investing in the fund, the most common being administrative and performance fees;
• Consult a specialist or Research House to recommend the best funds to invest in.

To further maximize your earnings and minimize risks, it is recommended to diversify your portfolio, where you can observe the points below.

1. Look for ways to invest in FIIs from different management companies;

2. Invest in FIIs related to different categories of real estate, such as hotels, industrial warehouses, schools, etc.

3. Look for funds whose properties are in different regions of the country;

4. Diversify your investment in more than one type of real estate fund, such as brick and mortar funds, paper funds, hybrid funds, etc.

5. Distribute your money in a similar way among the FIIs in your portfolio;

6. Reinvest the income and capital gains obtained to multiply your invested assets over time.

How to invest in real estate funds?

Now that you know everything you need to know about investing in Real Estate Funds, let’s get started. See below the step-by-step guide to buying your shares and making excellent investments in these assets. Happy investing!

Open your account with a stockbroker.

One tip is to look for the best rated and most popular institutions like Rich, Clear, XP Investments, among others. Give preference to brokers that save you costs such as brokerage and administration fees.

Transfer the amount

Using DOC or TED, transfer the amount you wish to use in your investments from your checking account to the brokerage account. Your money will be available for investment within 24 hours.

Analyze available funds

Observe the funds available on the trading floor between 9 am and 5 pm and the trading volume of the most attractive FIIs.

Select the funds you want to invest in

Select one or more funds in which you wish to invest and study their investment policy, regulations, periodic bulletins, payment history and stock market volatility, etc.

Also assess the fund's risk level.

Observe the volatility of the securities on the stock exchange and the risk of the class of properties that the fund represents (logistics warehouses, shopping malls, hospitals, letters of credit, etc.).

Search for the FII you decided to invest in by ticker name.

The ticker is a code for trading FIIs that is made up of 4 letters followed by the number 11, such as HGRU11, RBRP11, VILG11, among others. When locating the asset, set the number of shares you will purchase, check the purchase value and confirm.

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