Investment as a form of saving has been becoming more and more popular. Mostly due to an increasing need to form own capital, because of a high inflation and decreasing of money value, with the aim to gain more money thanks to the complex interest rate. To the diversification of client’s investments belongs also the capital in real estate funds,which are a very good alternative not only for investors, who are looking for the long-term fund performance without major turbulences.
Real estate funds follow the basic principles of collective investment – they collect funds from several investors with the aim of purchasing and managing real estate or other real estate assets. They offer investors the opportunity to invest in real estate without the need for high capital. They bring various advantages such as a greater stability, a lower risk, an interesting profit and, last but not least, the so-called tangibility of the fund. The minimum deposit in such fund starts from 4 euros. Their popularity increases from year to year, which is also indicated by the latest record of the Slovak Association of Management Companies on the increase in assets in real estate funds in Slovakia. It is important to mention here that investing in real estate also may include some risks, such as a decrease in the value of real estate, rentals or other assets. Therefore, before investing, it is necessary to carefully study the fund's strategy, its history and the risks that the given portfolio may have.
How such fund works
As we mentioned above, real estate funds combine the world of collective investment and real estate. The main strategy is the purchase of a high-quality commercial real estate,primarily in attractive locations, with the aim of acquiring creditworthy tenants. The fund's profitability is ensured by the income from a real estate rental, which is mostly based on the long-term rental contracts.It is a common standard that if a tenant wants to leave before the agreed rental period expires, the tenant is obliged to pay the landlord the rent for the period between the termination of the contract and the expiration date of the rental period. So, for example, if the tenant has a contract for 5 years and leaves after 3, he must also pay rent for the following two years, despite the fact that he will not use the property. Real estate funds are actively managed,which results in the higher fund management fees. In the event of a profit, the investor also has a tax obligation. If the fund is chosen correctly, it brings investors a stable return, which sometimes reaches a linear character.
What affects the profitability of the fund, or what is necessary to observe when choosing a fund?
- Assets of the fund - in simple terms, what properties make up the assets of the fund
- Risk diversification - a method of risk decomposition
- Financing of the fund - in what amount is the fund loaned
- Liquidity of the fund - how much funds the fund holds in cash
- Fund costs – investor fees such as fund management, entry and exit fees
- Average length of lease contracts
- Inflationary clauses in rental contracts - ensuring rent increases over time
- Property occupancy
- Expected return
- Latest performance of the fund
Real estate funds in Slovakia - which ones are worth looking at?
The largest real estate fund in Slovakia is REALITNÝ O.P.F. from 365. invest, which already has more than 1 billion euros under its management. The average performance over the last 3 years is 3.42% p.a., the minimum investment amount is €500, the annual administration and depository fee is 2.16%. The fund belongs to the J&T portfolio.
The oldest real estate fund in Slovakia is the Prvý realitný fund,managed by the company IAD Investments, which has more than 440 million euros under management. The average performance over the last 3 years is 4.54% p.a., the minimum investment amount is from 20 euros, the annual fee for management and depository is 2.16%.
Both funds have a risk level of 2 and their past returns have a growing character without significant fluctuations. You can see more on the SASSwebsite. It is important to note that past performance does not guarantee future returns. Therefore, it is essential to follow the latest information and consult with experts about your investment steps.
Also worth mentioning is the Czech INVESTIKA real estate fund,managed by the company INVESTIKA, which currently has assets in the amount of more than 17.4 billion Czech crowns (CZK), which is approximately 687 million euros. This fund invests in a high-quality commercial real estate, including premium office buildings, shopping centers, logistics complexes and other sectors. The average return for the last 3 years in the EUR class is over 6% p.a., the minimum investment is from 4 euros per month, the annual management fee is 1.7% per year.
We believe that we have brought the issue of investments in real estate funds a little closer to you. For more information, do not hesitate to contact us.
Your ProFin Experts team
