FAQs about Differences Between REITs and Real Estate Funds

Real Estate Investment Trusts, commonly referred to as REITs, are publicly traded companies that own, operate, or finance income-producing real estate assets. They typically invest in a diverse portfolio of properties, including commercial real estate like office buildings, shopping centres, and residential properties. REITs are known for their attractive dividend yields and are traded on stock exchanges.

Real Estate Funds, on the other hand, encompass a broader category of investment vehicles that pool capital from multiple investors to invest in real estate. These funds can take various forms, including mutual funds, exchange-traded funds (ETFs), or private investment funds. Real Estate Funds offer diversified exposure to real estate assets and may include both residential and commercial properties.

Ownership differs between REITs and Real Estate Funds in terms of accessibility and control. REITs allow investors to own shares in a publicly traded entity, providing fractional ownership of a diverse real estate portfolio. Investors have limited control over property management decisions. 

Real Estate Funds involve direct or indirect ownership of real estate assets. Private funds often offer more control but require higher investment minimums and may have limited liquidity. Publicly-traded Real Estate Funds offer ownership through shares, similar to REITs. The key distinction is that Real Estate Funds, especially private ones, may provide more direct control over the underlying assets.

In terms of investment focus and strategy, REITs primarily concentrate on owning and managing income-producing real estate assets, maintaining a diversified portfolio that spans commercial and residential properties. Their primary goal is generating consistent rental income, supplemented by capital appreciation. 

Conversely, Real Estate Funds represent a broader category, pooling capital from multiple investors to invest in real estate. These funds offer a diverse array of investment focuses, spanning property types like residential, commercial, industrial, and specialised real estate assets. Investment strategies within Real Estate Funds can vary widely, encompassing income generation akin to REITs, growth-oriented approaches, and specific geographic or sectoral focuses.

Risk Factors for Investing in REITs:

• Market Volatility: REITs are sensitive to market fluctuations and may experience price volatility, impacting share values.
• Interest Rate Risk: Changes in interest rates can affect REITs’ financing costs and property values.
• Property-Specific Risks: REITs’ performance can be influenced by the locations and types of properties they own.

Risk Factors for Investing in Real Estate Funds:

• Market Risk: Like REITs, Real Estate Funds can be affected by market conditions, but the level of risk depends on the fund’s investment strategy.
• Managerial Risk: Private Real Estate Funds rely on fund managers’ expertise and decisions, introducing the risk of poor management.
• Liquidity Risk: Some Real Estate Funds, especially private funds, may have limited liquidity, making it challenging to access your investment capital quickly.

Investors should carefully consider these risk factors when deciding between REITs and Real Estate Funds to align their investments with their risk tolerance and financial objectives.

The costs associated with managing investments differ between REITs and Real Estate Funds. REITs typically have lower management fees due to their passive management style, deducted from assets. 

Real Estate Funds, especially actively managed ones, may have higher fees, impacting returns. Investment minimums vary as well, with REITs allowing investment in single shares, accessible to a broader range of investors. Real Estate Funds, especially private ones, often require higher minimum investments, potentially limiting accessibility to those with larger capital. 

These factors should be considered when choosing between the two investment options based on individual financial goals and resources.

The minimum investment required differs between REITs and Real Estate Funds. REITs are accessible to individual investors with relatively low investment minimums, often the cost of a single share. 

In contrast, private Real Estate Funds, including non-traded REITs and private equity real estate funds, often demand higher minimum investments, ranging from thousands to millions of dollars, making them less accessible to smaller investors. That is why SafeRE provides smaller investors access to institutional-grade real estate funds at a very low entry barrier without fees and bureaucracy.