Real estate investment has long been considered a reliable and profitable venture. However, the traditional methods of investing in real estate, such as purchasing rental properties or flipping houses, can be time-consuming and require significant capital. One alternative to these traditional methods is investing in a Real Estate Investment Trust (REIT) Absolute Return Fund. This article will explore the benefits of this investment strategy, providing valuable insights for US real estate investors, homeowners, first-time home buyers, and real estate agents.
What is a REIT Absolute Return Fund?
A REIT is a company that owns, operates, or finances income-producing real estate properties. These companies pool the capital of multiple investors to purchase and manage a diverse portfolio of properties. A REIT Absolute Return Fund is a type of investment fund that focuses on generating consistent, positive returns by investing in REITs, regardless of market conditions. This is achieved through various investing strategies, such as long/short positions, arbitrage, and leveraging.
Benefits of Investing in a REIT Absolute Return Fund
1. Diversification
- Investing in a REIT Absolute Return Fund allows investors to diversify their portfolio by gaining exposure to a wide range of real estate assets, including commercial, residential, and industrial properties.
- These funds typically invest in multiple REITs, further diversifying the investor’s exposure to different property types, geographic locations, and management teams.
- Diversification helps reduce the overall risk of an investment portfolio, as it is less likely that all assets will perform poorly at the same time.
2. Professional Management
- REIT Absolute Return Funds are managed by experienced professionals who have extensive knowledge of the real estate market and investing strategies.
- These managers are responsible for selecting the REITs to invest in, as well as implementing the various strategies to generate consistent returns.
- Investors can benefit from the expertise of these professionals without having to actively manage their own real estate investments.
3. Liquidity
- REIT Absolute Return Funds are typically more liquid than direct real estate investments, as they can be bought and sold on the stock market like any other publicly traded security.
- This allows investors to easily enter and exit their positions, providing greater flexibility in managing their investment portfolio.
- Liquidity is particularly important during times of market volatility, as it enables investors to quickly adjust their holdings in response to changing market conditions.
4. Consistent Returns
- The primary goal of a REIT Absolute Return Fund is to generate consistent, positive returns regardless of market conditions.
- This is achieved through various investing strategies, such as taking long and short positions in REITs, arbitrage, and leveraging.
- By focusing on absolute returns, these funds aim to provide investors with a steady stream of income, even during periods of market downturns.
5. Tax Advantages
- REITs are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends.
- These dividends are typically taxed at a lower rate than ordinary income, providing a tax advantage for investors.
- Additionally, some REIT Absolute Return Funds may qualify as pass-through entities, allowing investors to avoid double taxation on their investment returns.
Case Study: The Cohen & Steers Absolute Return Fund
The Cohen & Steers Absolute Return Fund is an example of a successful REIT Absolute Return Fund. Launched in 2010, the fund has consistently generated positive returns for its investors, even during periods of market volatility. As of December 31, 2020, the fund had a 5-year annualized return of 5.34%, outperforming its benchmark, the FTSE Nareit Equity REITs Index, which had a 5-year annualized return of 4.72%.
The fund’s success can be attributed to its diversified portfolio of REITs and its use of various investing strategies, such as long/short positions, arbitrage, and leveraging. By focusing on absolute returns, the Cohen & Steers Absolute Return Fund has provided its investors with a steady stream of income, even during periods of market downturns.
Conclusion
Investing in a REIT Absolute Return Fund offers numerous benefits for real estate investors, including diversification, professional management, liquidity, consistent returns, and tax advantages. By focusing on generating absolute returns through various investing strategies, these funds provide a reliable source of income for investors, even during periods of market volatility. As the case study of the Cohen & Steers Absolute Return Fund demonstrates, a well-managed REIT Absolute Return Fund can outperform traditional real estate investments and provide investors with a steady stream of income.
Leave a Reply