Real Estate Hedge Funds

In a nutshell, a hedge fund is defined as a type of investment that can be availed by sophisticated investors like individuals and institutions having significant assets. Hedge funds do have securities just like other mutual funds and people have the option of investing in other types of securities as well. However, there are some major differences between hedge funds and other mutual funds. There has been a new trend of applying for real estate hedge funds and many real estate investors are interested in moving towards the real estate hedge fund space. This recent development highlights the validity of this investment model. Many renowned companies like GEM in Chicago are participating in this field from almost seven years and the industry keeps on growing.

Up till now, a definite number of real estate hedge funds are not determined but it is estimated that there are thirty to forty funds available in the market. One of the major restrictions of getting a real estate hedge fund is the complexity involved related to shortening REIT stocks. REIT stands for Real Estate Investment and is very similar to stocks. They are considered to be an important asset class with a large range of portfolio options and entice small investors to engage in estate investments. To promote this field, you will see many real estate hedge funds in the market. In a broader context, there are two ways through which individuals may invest in REIT. One is by investing in mutual fund or other by purchasing the REIT shares from the open exchange. It should be kept in mind that there is a wide difference between stock market and real estate hedge funds and they are not highly correlated with each other because there have been some cases when REIT did not move with the stock market and showed different trends.

Advantages of real estate hedge funds and REIT
The main reason of the increasing popularity of real estate hedge funds is its availability to avail the tax break. The securities related to real estate charge a negligible amount of income tax to the buyer and individuals are required to distribute minimum ninety percent of the yearly income as dividends. As a result, the investor gets approximately six percent dividends.

Another important thing to be noticed is that there is negative relation between the stock market and the real estate hedge funds. Thus, these two funds fail to move in unison. In 1990 when the stock market was highly profitable, the REIT securities suffered a lot. Thus, the absence of positive correlation is considered to be the biggest advantage as the overall returns are maximized when the stock market is down.

The real estate security is always taken as the more stable investment option. REIT reflects the investment that is in the market for a long time and has promising stability. Therefore, real estate hedge funds attract people to invest in the option that is affordable when making investment in property. The legal complications are that expenses are minimized when investment is made through real estate hedge funds. This is not the case when people purchase property directly.

Disadvantage of real estate hedge funds and REIT
The biggest disadvantage which people feel regarding this is that they have to reinvest the capital because the funds are usually returned in terms of dividends. Despite the fact that real estate hedge funds are considered to be more stable than other investment options, it would be a foolish thing to take it as a rule of thumb. Changes are experienced and in case the stock market shows massive downfall, the real estate hedge funds and REIT are likely going to be affected.

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