Real estate investment trusts overview

The idea of real estate investment funds can be summarized as investment tools that allow individuals to invest in real estate without the need to buy real estate directly, as these funds work by collecting money in their investment vessels from a number of investors, and investing those funds in carefully studied real estate assets to achieve the best possible income.

Real estate funds are usually supervised by government agencies that guarantee investors the safety of their individual investments. The fund is managed by an experienced real estate investment manager with an integrated team that organizes the fund's work, formulates its strategy, and monitors the movement of its investment assets.

Real estate funds are characterized by diversified investments in profitable types of real estate, such as: Offices, commercial centers, residential apartments, hotels and resorts, and can also include the movement of real estate in all its stages, such as: Construction, real estate development and housing, as well as the fund's activities include selling, buying, leasing and operating.

Overview of bond investment funds

Bond funds are similar to real estate funds in that they are investment vehicles that pool investors' money in one pot, but they specialize in investing in diversified bonds, such as bonds issued by governments or companies.

These funds rely on the interest earned on the bonds they purchase, so they provide investors with a steady income in the form of periodic interest payments.

Bond funds usually distribute their investments in a variety of bonds in order to minimize investment risks and avoid bankruptcies, which are a nightmare for them. Bond funds seek to diversify their assets between short- and long-term bonds, government and non-government bonds.

Comparing REITs with Bond Funds

Based on our previous definitions of real estate funds and bond funds; Here we discuss the most important differences between them, with a general overview of each part and axis.

Returns and risks

Real estate investment funds provide stable investment returns, thanks to the distribution of their investments in profitable real estate assets, such as resorts, hotels, malls... in addition to other forms of investment, and real estate provides a guarantee against harsh investment risks, as real estate assets tend to grow.

Similarly, bond funds provide a stable investment income based on the interest earned on the bonds they purchase, but with a lower return on investment than real estate funds.

In terms of risk, they are evaluated on the basis of the issuer and its credit rating.

Liquidity and ease of trading

The trading process in real estate funds is less dynamic in monetizing assets compared to bond funds due to the nature of real estate investment, rising real estate prices, and the need for more time to be sold without loss. Bonds can be sold to another investor relatively easily.

Costs and fees

Costs and fees typically vary depending on the transactions and their nature, so investing in real estate funds may be more expensive than investing in bond funds, especially if there are multiple transactions and procedures.

Diversification and risk management

Both REITs and bond funds can have room to diversify their assets, by buying a number of different and well-studied real estate assets or bonds, with the aim of maximizing growth opportunities and minimizing risk factors.

Investment objectives

Growth opportunities for real estate investments are often long term, as the value of assets increases over time, and real estate investments may achieve high numbers at times, depending on the market movement at that time. Bonds, on the other hand, often provide a fixed income from interest until the value of each bond is redeemed.

Advantages and disadvantages of real estate investment trusts

One of the main advantages of real estate funds and investing in them:

• Tax reductions for direct investment in real estate, and in Turkey, for example, the tax withholding rate is 0% on the income obtained from investing in real estate funds, held for more than two years.
• Diversification in investment assets, by distributing capital over a number of assets, and in different geographical areas.
• Expert management of real estate funds by people with experience and knowledge of the nature of the real estate market and dealing with its risks.
• Real estate funds are easier to monetize than direct real estate investment, as the investor can sell their stake in the fund more easily.
• The returns of real estate funds are often described as stable returns, through the rental of their properties as well as the increase in the value of those properties.
• Inflation protection, as real estate is one of the best assets that can maintain its value during economic crises, which preserves capital better.

Some of the most common disadvantages of real estate funds:

• Real estate is subject to market fluctuations influenced by real estate market conditions.
• Real estate funds may not be as easy to monetize as other types of funds.
• Costs and expenses may be relatively high as they are associated with high-cost assets.

Advantages and disadvantages of bond funds

 As for the most important features of bond funds, they are popular:

• With its fixed income in the form of regular interest coupons.
• The possibility of diversifying the investment portfolio, through the funds' availability of multiple bonds.
• Their financial risk is generally limited, except in the event of the issuer's bankruptcy.
• Monetization of the fund's investment interests is usually smooth.
• Professional and experienced management of bond funds.

On the other hand, one of its most notable disadvantages:

• Bonds are affected by the country's interest rates, as the higher the interest rates, the lower the value of the bonds, which negatively affects the performance of funds specialized in them.
• The bankruptcy of the bond issuer, resulting in a huge loss of capital.
• The profitability of bond funds is lower than other types of funds, such as real estate and stocks over the long term.

When is investing in real estate funds the best option?

Investing in real estate funds can be an ideal option in many situations, such as:

1. If the investor wants to earn a steady, recurring income that can grow over time.
2. Or if you want to invest in relatively stable types of investment assets to minimize risk.
3. Investors with relatively little capital whose savings are insufficient to make ambitious real estate investments independently.
4. Savers and investors who do not have enough real estate experience to manage investments on their own.
5. Investors who want to take advantage of tax deductions on the movement of their recurring real estate investments.

When is investing in bond funds the best option?

In the case of bond funds, investing in them may be appropriate for a number of situations, including:

1. Investors looking for a stable and regular source of income.
2. Investing in relatively stable types of investment assets, with the aim of minimizing risk in order to protect capital.

Let Oragon's experts help you choose the perfect investment fund

The decision to invest in investment funds must be based on clear foundations, thoughtful decisions, and sufficient experience, even if minimal, in this investment field that you are about to embark on.

Oragon offers its clients a range of investment funds, in addition to its competence as one of the companies licensed by the Securities Commission and the responsible authorities in Turkey to license new investment funds, giving investors the opportunity to license their own investment fund that serves their aspirations and goals.

Oragon also provides its clients with free advisory services, and invites all those interested in investing in investment funds to familiarize themselves with its professional model and all its services in this regard.

Edited by Oragon Company ©