Real estate investment trusts (REITs) and real estate funds are two popular options for those looking to invest in the real estate sector. Beyond both investing in real estate, there are some key differences between REITs and real estate funds investors should be aware of:
REITs
A REIT is structured as a company or trust and owns (sometimes operates) income-producing real estate. By combining their capital, investors in REITS are able to buy shares of commercial real estate, and depending on the performance of the REIT, earn dividends. A REIT is traded like a stock and can own a variety of types of commercial real estate, such as medical clinics, retail shopping centers, office and apartment buildings, hotels, warehouses, and more.
Real Estate Fund
A real estate fund is typically a mutual fund that invests in public real estate companies (which can include REITs). Whereas REITs pay dividends to investors, real estate funds aim to generate value through the appreciation of the securities they own.
Key Differences between REITs and Real Estate Funds
REITs are fundamentally a current-income strategy, as they are required to pay out at least 90% of taxable income each year as dividends to shareholders. For investors looking for income-producing real estate investments, REITs can be an attractive option (eliminating the responsibility of actually having to manage and operate commercial real estate yourself).
Real estate funds, like most public mutual funds, are either actively or passively managed, tracking a real estate-focused index. As stated above, the main objective of real estate funds versus REITs is the long-term appreciation of capital, making real estate funds better for growth-oriented investors looking to incorporate a real estate component into their long-term investing strategy.
Beyond the public markets, there are potentially attractive opportunities in private real estate investment funds. These funds invest directly into real estate developments / properties and are typically managed by experienced teams of private fund managers. For example, at Cresset Partners our private markets experience and access allows us to be more nimble and flexible when sourcing and structuring our real estate investments. REITs and public market real estate funds can have more “red tape” and bureaucracy to navigate, which can cause delays and inefficiencies.
In summary, REITs and real estate funds provide an opportunity to invest in commercial real estate without having to individually own and manage those properties. Again, REITs offer an income-producing investment strategy through the payout of dividends. Real estate funds are typically better suited for investors seeking longer-term capital appreciation.
Explore opportunities for investing in real estate, please contact us [email protected]
Cresset refers to Cresset Capital Management, LLC and all of its subsidiaries and affiliates. Cresset Asset Management, LLC provides investment advisory, family office, and other services to individuals, families, and institutional clients. Cresset Partners, LLC provides investment advisory services strictly to investment vehicles investing in private equity, real estate and other investment opportunities. Cresset Asset Management, LLC, and Cresset Partners, LLC are SEC registered investment advisors.
