What you need to know about real estate investing

Investing in real estate is one of the oldest forms of investing. Predating modern stock markets, property is an alternative asset class which investors can add to their portfolio to achieve better diversification beyond combining traditional asset classes such as bonds and equities. For some investors, the fact that real estate is a tangible asset class, is a big attraction too.

Different types of real estate investments.

There are different types of property or real estate – there is residential, including homes and apartments and commercial property, the latter of which includes the likes of office buildings, retail parks, shopping malls and industrial buildings such as manufacturing facilities and warehouses.  

Why invest in a real estate fund?

There are two main sources of return of any real estate investment:

Rental income and Capital growth.

While many people aim to buy their own home, or even a buy-to-let property, purchasing a commercial property is generally not within many people’s reach. However if you want to own (part of a) property, commercial or otherwise but don't have piles of cash and don’t want the hassle of being a landlord, a real estate fund might be a solution for you. Real estate funds generally work like this - investors with the same objectives, pool their money together and buy shares in a set investment portfolio that invests according to a pre-set objective. Professional portfolio managers then invest this collective sum into various sources of real estate.

What drives the value of real estate?

Supply and demand for space is an important driver of property values, as it affects rental rates. The location and quality of the property is another determinant of value as prime properties tend to attract the largest rents. Further, the creditworthiness of the tenant also affects the price of a property. If the tenant fails to meet its rental obligation, the owner’s cost will rise, hence affecting the value of the real estate.