Professional real estate investing
Investors often show a preference towards investing in real estate rather than stocks, bonds and commodities, especially in the current economic environment.
In this post, we examine professional investments in real-estate through financial instruments. A direct comparison between traditional and professional real estate investing is also presented here.
Advantages
1. No minimums:
Choosing the professional approach to real estate investing benefits investors requiring no minimum investment. Thus, investor can gain exposure in the real estate market without the capital commitments of purchasing a physical property.
2. Fast execution and ease of investment:
Moreover, the time-lag from the point in time an investor decides to make a transaction and when the transaction actually takes place is eliminated completely, as one can buy or sell the ETF immediately with no delays. Another important point is the ease of investment as it wipes out the third parties (no lawyer, no notary and no agent). This allows investors to enter/exit the market simply with one call to your relationship manager (us).
3. Significantly lower costs:
The main arguments for investing in real estate through financial instruments are the significantly lower costs associated with such investments. Precisely, the only such cost would be the 0.4% annual management fee.
4. Tax free:
REIT UCITS ETF are tax-free, with no need to worry about taxes on rent proceeds and ENFIA.
5. Maintenance costs are optimized:
All additive costs (such as maintenance costs of assets included in the REITS) are managed by professionals, thus, practically all the fuss associated with buying and holding a house is eliminated.
6. Diversification:
Investing in real estate via a financial instrument also enhances the diversification of the clients’ portfolio. More specifically, it allows investors to diversify their investment on a geographical level (gaining exposure in the real estate markets of multiple countries) as well as on company-level since the ETF consists of multiple equities of the largest Real estate companies in Europe. Such investments could also increase the types of real estate the investor buys by purchasing an ETF consisting of both residential and office premises REITs, further enriching diversification benefits. Last but not least, every asset purchasing decision of these top real estate companies is made by specialized professionals which significantly reduces the risk of ‘bad’ overpaid deals.
Disadvantages
1. Daily valuations create a sense of insecurity:
The main disadvantage of choosing professional investing in real estate through a financial instrument is the daily mark to market of the investment, as the security will show a daily valuation in the clients’ portfolio. This in turn may stress the investor creating a sense of insecurity for his investment. For instance, if the real estate market is down 5% in a month the investor might get worried of his investment in comparison to owning a physical property, where the investor may not even check the assets’ price for months.
2. Daily valuations shorten the investment horizon:
The time horizon of the investment may be shortened drifted from the ‘mark-to-market effect’, limiting the upside of the position.