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Property Investment Funds
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It is possible to invest in property without taking individual ownership of physical assets and the associated risks by dealing in property-related shares, where property investment funds are the most popular investment vehicle.
Investors purchase units of a fund, with capital usually staying in the fund until such time as the properties are sold and the proceeds are distributed between a number of investors.
Property investment funds can include commercial, industrial, retail and residential property. They can invest in tangible properties or shares in property companies, or a combination of both. Funds that are invested in physical property are less liquid than those that invest in property shares.
Property funds and syndicates must typically be viewed with a long-term investment in mind.
Generally speaking it takes considerable resources to build and manage a diversified portfolio of property company shares. Furthermore, such shares do not normally represent the most effective way of investing in property due to company volatility and tax implications.
Property Investment Funds are normally operated by a professional investment manager and - depending on the fund in question - are likely to carry tax implications more favourable to the smaller private investor. In many cases property funds are SIPP compatible.
Regulated (closed) property investment funds look to spread risk by creating a balanced portfolio of investments, generally holding lower risks for investors but also lower returns. There are stricter rules that regulated funds must follow such as:
Unregulated (open) property investment funds are only suitable for high net worth or sophisticated investors and are not marketed to the general public. They bring higher returns but also higher risk and less liquidity than regulated funds. Unregulated funds are not subject to the same restrictions as authorised or regulated investment funds.
The choice between investing in open or closed property investment funds will depend on the investor's risk/return profile. Unregulated funds are higher risk but will generate higher returns; regulated funds represent lower risk to the investor but will usually also generate lower returns.
Designed to provide a similar investment structure for property as mutual funds provide for stock investments, Real Estate Investment Trusts (REITs) are property funds with tax exemptions if 90% or more of the profits generated are distributed to investors. They are managed as property companies and the income is paid out to investors rather than re-invested in property.
Property investment syndicates allow investors to invest directly in property - typically with far less capital outlay than would be required if investing alone - by bringing together a group of investors to purchase a property or properties.
They are usually unlisted and involve a restricted number of investors and a specific amount of capital to be raised; syndicates usually invest in a single property or development of properties. This represents a higher risk than investing in property funds as there is less diversification and investors are exposed to only one market sector.
*This page is provided for information purposes only and should not be construed as offering advice. IPIN Global is not licensed to give financial advice and all information provided by IPIN Global regarding real estate should never be treated as specific advice.
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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.