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Understanding Property Funds
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A property fund allows investors to participate in real estate opportunities with the added benefit of diversification.
With greater awareness of the opportunities present in the current real estate market, many investors are looking carefully at property funds. The volatility of traditional investments, especially publicly traded stocks and bonds, drives interest and investment in various forms of real estate and property investment instruments.
A property fund allows the investor to diversify – and minimise risk – by buying multiple properties that are appropriately vetted (before acquisition) and managed (after acquisition) by skilled property fund managers. This differs from individual investors who are sole owners of single or multiple parcels of land. The lone investor may face headwinds from external factors, such as change-of-use resistance or an adverse change in local economics, whereas a property fund will strive to avoid such situations. While the nature of land will always be subject to externalities, the diversified nature of property funds leaves the investor with proportionately less exposure.
An alternative to a property fund is a REIT (real estate investment trust) fund; however, the two have key differences. A REIT is more liquid – an advantage to some investors and a disadvantage to others. But this also tends to subject the investor to market volatility, something avoided by a trust fund. REIT funds incur management fees that are generally greater than those found with property funds.
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