What do you think about owning a property, receive your monthly rentals without default problems and with values above the market average? What if this property is a mall? A hotel? Or even a business one? What if, in addition, all the receipt of these rents is exempt from income tax? It sounds too good to be true? It is not. This exists and is within your reach. Let’s discuss in this content about real estate funds and everything you need to know before investing. So, watch this video until the end to know everything about this excellent investment in variable income.
What are the real estate fund, Its Investment, And types
First: what is the real estate fund? The real estate fund is nothing more than a group of people who want to invest in real estate assets. For what purpose? With the objective of generating income with the lease, with the lease, with the sale of the property. So, these people come together … In fact, all of this is done in a totally transparent way for you.
In my opinion, investing in real estate funds is the first step you take when you want to invest in variable income. Because a lot of people start investing in variable income directly by investing in stocks. And I like to start with real estate funds, although they are very different and even have different purposes, ok? But I like to start with real estate funds, because it is an investment that is simpler, that it has less risk, less price volatility and it has some advantages for you too, mainly in terms of income tax exemption related to the receipt of rents. So, this is what in fact is a real estate fund and there are basically 3 types of real estate funds. People sometimes categorize into more types, but as simple as possible … I like to consider that there are 3 types. The first one is the brick bottom, let’s say so.
What would a brick bottom be? It is a real estate fund that he invests predominantly in real estate, in brick real estate, that would be shopping malls, hospitals, colleges, commercial buildings, warehouses, warehouses … So, he invests, the manager of that fund decides to invest in real buildings for what? In order to allocate that place, to be able to make a sale later with a capital gain. So, real estate funds are often made up of more than one property, okay? And it has some advantages for you too.
So, the first type would be these buildings … these brick bottoms. The second type would be paper funds. What would the paper funds be? These are real estate funds that actually invest in financial securities that have some relationship with the real estate sector. Like LCI, which is the Mortgage Bill, CRI, which are Real Estate Receivable Certificates, the question of the real estate received, you buy the receipt flow of mortgage debt, in short, some type of financial investment, of financial securities related to the real estate market. So that would be the second type, the paper funds. And there are also real estate funds, which is actually a fund that the manager is responsible for choosing the best real estate funds on the market. So, it is a fund that invests in other funds and it is often even ideal to get you started.
Everything You Need to Know Before Investing
When you want to invest in just one real estate fund, it’s worth it to choose a good background fund, because he alone will diversify. Now you learn more about that market or while you accumulate more money to diversify your portfolio into different funds. That you can invest in a fund focused more on business, another fund focused more on hospitals, on shopping malls, you can diversify. Logistic warehouses are also very good here in Brazil. So, these would be the 3 types of real estate funds. Now let’s discuss a comparison between real estate and real estate funds for you to understand even more what are the main advantages of these real estate funds.
The first is simplicity. Why? Because when you are going to invest in a property, you are going to buy a property, you will have to worry about payment of ITBI, with the deed, with registration. If you don’t hire a forwarder, you’re going to have to do it all on your own. You will have to worry about putting your property for rent. When it is vacant you will have to assume the costs, with reform if necessary. So, you have all these costs and all this hassle, ok? Not with the real estate fund, no. You simply go to your broker’s website, your broker’s home broker, type the code of the real estate fund and make your investment without leaving home and everything managed by the fund manager.
So it is very simple to invest in real estate funds. The second point is liquidity. When you have a property and want to sell the property, the sale, if you want to sell it fast, it is very difficult to get it. Because a property many times for you to sell it at the price you want, sometimes it takes weeks or even months. Apart from all the formalities, if the person is going to buy financed, you have to wait. If the funding doesn’t work, you have to go back to square one and look for everything again, look for a newly interested person. No real estate funds. Quotas are traded on stock exchanges.
So, you just put your quota code there, but the price you want to sell and have it sold. If you want to make the sale at market price, you sell it almost instantly, because the liquidity of these real estate funds has increased a lot. Then, you can make a sale in a few seconds. Another point is cost. When you are going to buy a property, in addition to all those costs that I mentioned at that point of simplicity, you also have to pay a brokerage fee to the broker who found the property for you. And this brokerage fee is usually 5% of the total value of the property. When you invest in real estate funds, this rate is very low. And there are already several brokers that do not charge a brokerage fee for you to invest in real estate funds. So the cost of both buying and selling is infinitely less.
In fact, in many cases it is non-existent. Another point is fractionation. What would fractionation be? Stop to think about the property. If you buy a property, buying a property requires a very high price. And you can only make the total purchase or total sale. You can’t, I don’t know, find a certain apartment and buy just a fraction of that apartment. You have to buy that entire apartment. So, you will have to spend a very high amount and you, when you make the purchase you have to make the purchase of the full amount, regardless of whether it will finance or not. And when you make the sale you also have to make the sale of the total value of the property. Real estate funds are totally different because you can buy shares in that fund. So, it’s a little piece of that fund, you buy a piece and keep the bonuses on that piece too. So, you can invest small amounts from, I don’t know, 100, 1,000 reais you can invest in a real estate fund and you can also make partial sales.
You do not need to sell all the shares you have. You can buy, I don’t know, invest 5 thousand reais in real estate funds and at any given time you want to sell only a portion of your shares, wants to sell only the approximate value of, I don’t know, 3 thousand reais. You can make that sale too. So it’s important, because it gives you a lot more flexibility in relation to money management, this possibility of a split in real estate funds, you are able to buy fractions and sell fractions of a real estate fund.
Another issue is also taxation. When you have a property, the amount you receive as rent is taxed as a normal individual income tax. You will pay income tax on the amount you receive from rent and it will depend on what track you are on. And you will also pay income tax on your capital gain. That would be, in this case, the 15% income tax. What is a capital gain? That’s when you bought a particular property and he sold it upfront at a profit, for a price higher than the purchase price. So, on this difference, you have to pay 15%, that in the case of real estate it can be compensated if within 180 days you buy a new property.
In the case of real estate funds, you need to make the payment of income tax on capital gain, regardless of the amount traded, if you sold at a profit. Another point is also related to risk. When you have a single property, you invested that high money in a single property, you suffer from the risk of vacancy, of your property being unable to rent for a long time, you have to keep assuming those monthly costs of the property while you can’t make the rent.
You also have the risk of default. From a person renting their property and simply not paying. Do not pay on time or delay one, two months and then you have to come in with all that confusion to evict someone, often involve a lawyer and mostly a lot of stress for you. In the case of real estate funds, you may also have a risk of vacancy, default, but as funds generally invest in more than one property, this diversification makes this risk diluted. You have 10 properties in your background, if one of them had a default or vacancy problem, the other 9 ends up covering it for a while until things get organized and the fund manager can manage the fund better, either solving the problem or investing in other properties. So, this risk is also diluted when investing in real estate funds. Another very important issue is the issue of management. When you have your own property, you need to use your time to manage. And you often don’t have time for that, to keep up with good opportunities, to be able to see if everything is working properly, if you need any renovation, if you have any new investment opportunities.
It all depends on you, so spend your time. When you invest in a real estate fund, the fund has managers in there. These managers are specialized professionals. So, there is a group of people who not only manage the properties, but looking for new opportunities for that fund, to use that fund. Whether because you made a profitable sale and want to invest in a new property. So, there is a specialized group of people to manage your money much better. And one last point is the question of the property itself. Because when you are going to invest in a property, that property needs to fit in your pocket.
You can’t buy a piece of a super top property. You have to buy a property that fits in your pocket. Not in a real estate fund, however. Because as is a whole group of people who put money in there and there are millions, multiple millions in reais, you get access to top-notch real estate, shopping malls, hospitals, logistics warehouses buying a small part of that good, you buying a piece of the bottom, you get a value proportional to the part you have. So it gives you a lot, not only diversification, but a great quality in invested properties too that wouldn’t fit in your pocket if you had to buy it on your own.
7 advantages Of investing in real estate funds
So, in summary, there are basically 7 advantages when investing in real estate funds. The first one is liquidity, the possibility for you to buy and sell with total simplicity, with total agility. This is very important. The second point: passive income. When you invest in a real estate fund you have real passive income. Every month money comes into your account. In the case of investment in real estate, it may be that in a moment of vacancy you don’t get that.
So that’s another point as well. You have a passive income guaranteed for you. The third point is diversification. The amount you use to buy a property, it often only gives you the possibility to buy a single property. When you invest in real estate funds, even if you invest in a single fund, that fund often has dozens of properties in it. So it diversifies. Because sometimes you invest in a property and that area has some kind of problem, suffers some kind of devaluation. And when you are diversified, your risk is much less. A fourth advantage is the low initial investment. You will not be able to buy a property. It is different from a residential property, or even a commercial room. When you buy a commercial building, a shopping mall, a college, a hospital, a bank branch, you have much higher profitability. A percentage of the rent value over the total value of the property is much higher. So you also have this advantage, which is greater profitability.
The sixth advantage is the exemption from income tax on the payment of rent. In the real estate fund, you do not pay income tax on the amount you receive monthly and when you have your own property you pay, that amount is taxed. And a seventh advantage would be the low costs involved in this operation. Because you don’t pay a brokerage fee to invest in real estate funds, because some brokers offer this. And the other fees are very low, especially when you compare with ITBI, structure, registration, all of these other fees involved in buying a property itself. So, these 7 advantages think a lot in favor of real estate funds. And then you must be asking yourself: “Rafael, but then what are the disadvantages? What would be the risks? ” Look, I listed 4 risks here which are even similar to the risks of a property, when you have your own property, but, how could I say? They are minimized in the case of real estate funds.
So, the first risk is market risk. Market risk is the risk of an economic problem, a crisis, a devaluation of that specific sector that that property is invested in, especially if he’s very focused. There is this market risk. A second risk would be liquidity risk. Because as much as the real estate funds market has developed a lot, still, not many people are investing in real estate funds. So, it has grown, but it still doesn’t have that many.