Real estate funds and real estate investment trusts (REITs) are two attractive investment options for small-scale investors. Both options vary significantly from each other and come with their fair shares of advantages and disadvantages.

Still, funds are often considered better than REITs due to numerous reasons. You must explore all the details before deciding to invest in a specific one. Moreover, do not hesitate to consult the professionals and utilize their expertise to make the best decision and maximize your profits.

Scroll down to the details of this article to learn and explore why real estate funds are a smarter choice than real estate investment trusts and follow the appropriate means to invest in them.

Top 5 Reasons Real Estate Funds Are Better Than REITs

Real estate is undoubtedly the most attractive investment option. However, it also requires high initial capital to enter the market. Small investors look for alternative options like real estate funds or REITs, which let them enter the market. Funds are a better option compared to an investment trust, so you can give it a try.

Here are the most crucial reasons real estate funds are better than real estate investment trusts and should be your first choice.

⦁ More Strategic Flexibility

Real estate funds offer more strategic flexibility as compared to investment trusts, which makes them a smarter choice. No public market rules apply to funds, but investment trusts. Investors can optimize their strategies and choose development, value-add, or fix-and-flip projects in real estate funds.

However, in the case of REITs, you can only opt for specific property types that are mandated. Funds do not have pressure for showing quarterly progress and support asset-specific and not generalized decision-making. On the contrary, REITs do not support this at all and even hold the property for a long time. Once you invest in it, you will have to serve the duration as there is no flexible exit strategy.

⦁ Better Return Potential

Real estate funds have a better return potential as compared to real estate investment trusts, which makes them a smarter choice. Funds prioritize value-add strategies and timing-based investments, which lead to higher profits. The focus of funds is on appreciating the asset value and not just earning high income. 

On the contrary, investment trusts prioritize stability over higher returns. Such investments are bound by regulatory constraints and focus on consistent income, even if it is too low. These are not actively managed, which also limits value creation over time. Moreover, the exit is not even flexible, which makes investors rely on limited returns for years, instead of earning high profits. So, funds are the best choice if you are interested in securing better returns.

Consult experts from Global Partners for further information.

⦁ Deeper Transparency and Control

Deeper transparency and control are the next reasons that make real estate funds stand out from real estate investment trusts. Funds let the investors directly connect and communicate with the fund manager. You can ask for detailed reporting of each and every action in fund management. It also ensures an in-depth insight into the projects in which investment is being made. 

On the contrary, investors are treated as public shareholders in the investment trust and rarely have any say in the operation. The REIT authorities choose the properties, project duration, and all the other details. The investors are just bound for a fair share of time with no profitable or even reasonable exit besides earning a loss.

⦁ Reduced Public Market Exposure

Reduced public market exposure is another reason investing in real estate funds is better than real estate investment trust. Funds are usually private, so market volatility and the sentiments of other investors typically do not hurt them. Moreover, asset fundamentals define and impact the valuation instead of the short-term trading behaviors. On the contrary, real estate investment trusts act as public exchanges. Market conditions impact them even if these are not directly related to the performance of the property. The prices, profits may not directly reflect the value of the specific property. Considering this, it is safe to say real estate funds are a better investment option as compared to REITs.

⦁ Tax and Structural Advantages

Tax and structural advantages are the last reason real estate funds are better than real estate investment trusts. Real estate is often structured and prioritizes fair profit distribution. The investors enjoy a favorable tax environment, which means they do not need to pay tax on capital gains. Besides this, returns can be structured flexibly, which allows investors to opt for the best-suited measures. 

On the contrary, real estate investment trusts need to follow the mandatory requirements for dividend distribution. These dividends are also subject to taxes, which reduces the returns and often hinders reinvestment. REITs are also less flexible, so you must weigh all your options before investing in them.

Real Estate Funds Or REITs – What Is Your Pick?

In case you are new to real estate investment, do not jump into the first venture that seems promising. There are multiple technicalities and risk factors involved, which might not be evident to an outsider. Feel free to consult a fund manager or investment experts to make the right investment decision and enjoy high profits over time.

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