Real estate investment trusts overview

The concept of investment funds arose in an organized manner as early as the beginning of the previous century, as participatory investment tools, collecting capital from individuals to invest it within a single financial portfolio, then the image of this investment evolved and specialization increased until it reached its current state of organization.

Real Estate Investment Funds (REITs) are a single investment portfolio that allows savers to put their savings into it; the fund manager invests these amounts in selected real estate projects, allowing savers to invest in real estate without buying it directly.

Today, real estate funds are regulated by governments to help investors safeguard their individual investments, and the fund is managed by a manager specialized in real estate, with an integrated team that organizes the fund's work, formulates its strategy, monitors the movement of its investment assets, and is proficient in dealing with its investment risks.

The activity of real estate funds is not limited to one real estate class, but their activities are often distributed in all types of profitable real estate, such as: Land, commercial centers, residential apartments, hotels, resorts and residential complexes, and includes the movement of real estate in all its stages, such as: Construction, development, housing, buying, selling, leasing and operating.

Overview of direct real estate purchase

This is the typical image of real estate investment, apart from partnerships and other tools, where the investor is in full control of his investment, and he is the one who makes purchasing decisions after his own study or using a real estate consultant, and the investor is responsible for monitoring the growth of his investments, taxes and other legal matters.

This investment method also has its advantages and disadvantages, which we will discuss in the following paragraphs of this article.

Comparing Real Estate Investment Trusts (REITs) and Direct Purchase of Real Estate

There are several differences between these two investment vehicles, both substantive and organizational, including:

Initial cost

It is known that individual and direct real estate investment is considered a high-cost investment, due to the cost of large real estate assets, so direct real estate investment is usually not available to everyone.

Investing in real estate funds is more affordable for a larger group of investors and those with limited savings.

Diversification

In direct real estate investment, it is not easy to diversify real estate assets except for those with relatively large capital.

This is not the case in real estate funds, where by diversifying the real estate portfolio of a mutual fund, small investors can benefit from the rents of those investments that they would not have been able to benefit from outside these funds.

Management and maintenance

In direct investment, it is the duty of the investor to manage his investment himself, as he is responsible for studying the market and strategies, studying the location of the property, marketing it (sale or rent), and maintaining the property when needed or rebuilding it.

When investing in a real estate fund, the task of managing the fund falls on its management team, and the fund is responsible for setting investment strategies, maintaining the property, dealing with risks, submitting periodic reports, and distributing profits.

Liquidity

Real estate funds are easier to monetize than direct investment, as it takes longer to monetize capital in direct investment until the property is resold in time to prevent it from losing value.

Real estate funds offer specific strategies that help investors access their capital more easily.

Returns and risks

In real estate investments within funds, the fund is charged a set of expenses for opening and closing deals and some other expenses, as these expenses come at the expense of some of the investment return. At the same time, these funds follow deliberate policies to deal with various risks.

In direct investment, the financial returns may be better, provided the property is managed wisely and the risks are handled professionally, but this task will fall directly on the investor, and the success of the investment will depend on the success or failure of the performance.

Advantages and disadvantages of real estate investment trusts

One of the most important advantages of real estate funds and investing through them:

• Real estate funds are managed by expert management and people who are knowledgeable and experienced in the nature of the real estate market.
• Dealing with investment risks is done through a thoughtful work system and highly professional management techniques.
• An opportunity to diversify in investment assets, whether through real estate types or different geographical areas.
• Monetizing an investor's share in a real estate fund is easier than direct real estate investment, as shares in the fund can usually be sold easily.
• Real estate funds' returns are often characterized as stable, through the rental of their properties, as well as the increasing value of those properties over time.
• Real estate is an ideal tool to protect against inflation, as real estate is one of the best assets that can maintain its value during economic crises.
• Tax deductions for direct investment in real estate. In Turkey, for example, the tax withholding rate is 0% on income obtained from investing in real estate funds, provided they are held for more than two years.

Some of the most common disadvantages of real estate funds:

• It may not be as easy for an investor to monetize their share of capital in a real estate fund as it is in other types of funds.
• Real estate is subject to market price fluctuations influenced by economic conditions.
• The costs and expenses associated with investors' interests may be relatively high because they are associated with high-cost assets.

Advantages and disadvantages of buying real estate directly

One of the most important features:

• Full control over the investment and the ability to make decisions directly.
• Benefit from the property's rent, profits, and price growth without any deductions, except for expenses and taxes.
• Renting real estate freely, with the ability to rent it on long-term contracts, or modify the investment plans at any time.
• The ability to benefit from the property personally, and live in it during his spare time.

On the other hand, a number of disadvantages arise in direct real estate investment, the most famous of which are:

• Sufficient real estate experience and the ability to successfully manage the property.
• The need to be prepared for market fluctuations and various risks.
• Lack of liquidity and difficulty in monetizing capital compared to real estate funds.

When is investing in REITs the best option?

Investing in real estate funds can be an attractive option for investors in many situations, such as:

1. When you want to earn a steady, recurring income, as well as the opportunity for capital growth over time.
2. When looking for relatively stable investment assets with low risk.
3. A good investment option for investors with limited capital, whose financial capacity does not enable them to make their own real estate investments.
4. Those who have sufficient capital but do not have the necessary real estate experience and investment management.
5. The opportunity to benefit from tax deductions on recurring real estate investments.

When is buying real estate directly the best option?

On the other hand, there are many cases where direct investment is more attractive to some, such as:

1. If you want to invest for the long term in real estate that is waiting for a long-term growth opportunity.
2. Ambitious investors with an independent investment vision, and those who want to be independent with their investments.
3. The desire for an investment that combines utilization and appreciation of the property at the same time, such as buying properties that can be rented out in a certain season, and suitable for living in the rest of the year.

Strategies for combining REITs and direct real estate purchases

There is nothing that prevents investors with sufficient capital from engaging in both investment experiences, if they have sufficient financial and investment management and real estate experience, as well as asset diversification, which contributes to protecting capital from risks.

However, they are advised to follow deliberate strategies, such as:

• Start investing in a fund, and set up a profit-making scheme.
• Then buy one property suitable for investment in an investment-friendly location, before buying another property.
• Also, try to invest at deliberate stages, such as during a recession, when prices are more favorable.
• It is useful to diversify investments into ready-made profitable properties and those under construction, so that the investments help each other grow in stages.

Or other logical policies and conscious steps, away from various risks.

For everything related to real estate investment trusts in Turkey, consult Oragon's experts

In addition to its competence as one of the companies licensed by the Securities and Exchange Commission and the competent authorities in Turkey to license new investment funds, Oragon offers its clients a range of promising investment funds, especially in the field of real estate investment, with Oragon's exceptional experience in real estate trading, represented by its professional management team.

Oragon welcomes inquiries from all those wishing to explore our business model or understand the nuances of investment related to our business and funds, with a fully equipped team and completely free consultancy services.

Edited by Oragon Company ©