A real estate mutual fund is a type of investment made up of
securities, usually stocks, of companies that purchase real estate with
money collected from investors. Factors affecting the return of real
estate mutual funds include the real estate market in general, housing
starts, residential and commercial vacancy rates and interest rates.
Function
According to moneyzine.com, real estate mutual funds "tend to
focus their investing strategy on real estate investment trusts (REITS)
and real estate companies." REITs are companies that buy and manage
real estate with funds collected from investors. Real estate companies
run the gamut, from firms that sell real estate to firms that support
real estate ventures, like real estate software providers and property
management companies. A real estate mutual fund can include shares of
stocks in a number of REITs and in a number of real estate companies.
Advantages
Real estate mutual funds are an alternative to purchasing
investment property, especially if you want to limit your investment,
level of risk and involvement in management. They are also an
alternative to REITs if your goal is for your investment to continue to
grow; the IRS requires REITs to give all profits back to investors
annually, which means that the profits are subject to federal tax
annually. Profit on mutual funds remains in the fund unless you sell.
Real estate mutual funds, like all mutual funds and unlike real estate
itself, are relatively liquid. You can usually sell them in one day.
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