How to invest in real estate: pros, cons and prospects

02.01.2011 10:40
Articles about real estate | How to invest in real estate: pros, cons and prospects The real estate market is one of the largest in the world economy. The annual cost of real estate transactions tens of billions of dollars.

How to invest in real estate? What percentage of the capital needed to have and to whom his confidence? On this telling analysts Tranio.Ru.

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All real estate transactions are subject to special monitoring by governments and necessarily taxed. In connection with this already in the 19 century in the United States proposed a model of the creation of investment funds. What is it?

To put it simply, real estate investment fund - is a firm that invests in real estate or mortgages. Profits it receives due to the increase in property prices, property rental or receive interest on the mortgage.

At the same time investment funds - and this is their main feature - do not have to pay corporate income tax, which makes them a legitimate means of reducing the tax burden for investors. Participants in the fund paying the state only a tax on earned income, thus avoiding, double taxation.

Than good

Real estate funds have significantly higher returns than equity funds. They are much less susceptible to the risks traditionally associated the implementation of market transactions. According to the National Association of Investment Funds U.S. real estate (NAREIT), in contrast to other market segments experiencing significant difficulties in the global financial crisis, the index of aggregate profitability of investment funds in October rose by 4.5%, and its growth over the last months of 2010 year amounted to 23,9%.

A second advantage of investing in real estate fund - its high liquidity (ie, "mobility"). The investor has the opportunity at any time to buy and sell property or securities, invested in the fund, he can diversify their assets, to invest in facilities located in different regions and so on. This reduces the risk of loss of income that can be caused by a fall in property prices in one city or country.

What's wrong with

It would be rash to assume that real estate investment funds ideal tool attachments. They are characterized by a number of drawbacks. As it often happens, the main disadvantage is a direct consequence of the main advantages: since the funds required to pay 90 percent of their income to shareholders, they are left with only 10% of the profits for re-investment in turn. In this regard, the value of the investment funds is growing much slower than when using other models of investment.

Another disadvantage - that in the real estate investment funds not covered by a number of tax benefits enjoyed by other legal entities. Due to the fact that such funds are already exempt from corporate income tax. Also, please note that, despite the stability of investment funds to fluctuations in property prices and changing market conditions, they are also at risk for significant volatility of stock on the stock exchanges, especially in terms of financial crises.

How to choose

Under the Act of 1960, U.S. investment funds are divided into 3 main types: real estate funds, mortgage and hybrid funds. Real estate funds make up the bulk of existing funds. Investors who put their assets into such funds receive income from property rental, as well as changes in its value.

Mortgage funds (which at an early stage of investment funds were the most) currently make up only about 6% of the total number of investment funds in the U.S.. These funds receive income from interest on mortgages. Intermediate position between the two mentioned types of hybrid funds hold, but they are the least common.

Real estate investment funds are in Europe, but the practice of their creation has a much shorter history. For example, in UK law, which regulates the functioning of real estate investment funds, entered into force only in 2007.

Investment funds in the country have characteristics similar to the funds in the U.S., but may relate to the private fund type. In France, real estate funds appeared in 2003, and today in this country registered three major European investment fund. Although the most popular real estate investment funds have gained in Germany, where the investment in them often have even private individuals.

In Russia, real estate funds are called closed-end mutual funds (CUIT). In accordance with Art. 10 of the Federal Law of 29.11.01 № 156-FZ "On Investment Funds", "closed-end mutual fund of real estate - is separate property system, not a legal entity", resulting in a similar fund is exempt from property tax and is entitled defer payment of income tax. A characteristic feature of CUIT in Russia is a long-term invested in these investments.

Who is suitable

Thus, the real estate investment funds are very flexible and reliable way of embedding, which allows fund members to obtain a stable high returns with minimum risks. Nevertheless, they can not be recommended for those seeking a quick profit, as well as those who value the possibility of rapid withdrawal of investments, since it does not provide the structure and nature of the fund. In general, real estate investment funds designed specifically for investors who:

- Are capable of long-term planning investments

- Already have some financial resources,

- And, consequently, do not tend to get rich quick.
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