How to analyze a real estate fund?
There are different types of real estate funds, which can create confusion and challenges for those who are not used to FIIs. Therefore, by better understanding its characteristics and particularities, it is possible to find great opportunities to invest your money and maximize your earnings.
Keep following and better understand what real estate funds are and 4 factors that must be observed before investing!
What are real estate funds?
A fundamental point that must be analyzed before starting to invest in real estate funds is to understand what they are and how they work. Investing in FIIs allows the investor to own a part of a property or a group of properties. With this, you will be entitled to a portion of all monthly income related to the commercial exploitation of the property and benefit from it .
This means that you will be entitled to a portion of all income that the property is capable of generating, such as rent. Real estate funds can be invested in different real estate projects, such as:
Ready-made properties, such as buildings, malls and hospitals;
Financial assets, such as CRIs, LCIs, among others;
Investment shares in other real estate funds;
Development of real estate assets.
In addition, there are different types of real estate funds. Meet each one of them:
Bank agencies;
Agribusiness;
Development;
Education;
Hospitals;
Funds of funds;
Hotels;
Hybrids;
Incorporation;
Residential;
Real Estate Receivables;
Malls and retail.
What are the main factors that should be observed?
Now that we explain what FIIs are. we will show you how to analyze a real estate fund to help you find the best alternative for you and your investor profile. Check out X factors that must be observed!
1. Know the allocation strategy
One of the first necessary points on how to analyze a real estate fund when choosing the best type to invest in is the strategy adopted for allocating resources. For this, it is initially necessary to identify the type of FII in order to better understand the direction of values.
Furthermore, it is very important to go deeper into the strategy in order to be able to recognize the levels of risk assumed in its application. Resource allocation is fully linked to the manager’s decision-making. Therefore, it is necessary to check whether the manager is solid in the financial market, in addition to his qualifications and average performance in relation to the allocation.
2. Check the rates, terms and liquidity
Another essential factor on how to analyze a real estate fund is its rates, maturities and liquidity. The set of fees and costs provided for in the investment are expenses deducted from your income and, therefore, it is extremely essential to know them. One of the most common charges is the administration fee.
This is an amount that serves as remuneration to the professional manager in the allocation of resources. In addition to this expense, there is also the performance fee. It is charged on excess profitability, serving as a comparison parameter for a given benchmark.
It is also necessary to check the rates provided by the financial institution. In relation to the deadlines, they serve as a maturity of the contracts. Therefore, it is extremely important to check them before allocating an FII in your portfolio. As much as the real estate fund represents atypical contracts, it is necessary to assess its term and ensure that it is not close to maturity.
Typically, the longer the term of a contract, the better the prediction of earnings over the period. Long terms have lower risks, such as the property being without its tenants.
Finally, we have liquidity. It is necessary to evaluate the shares issued by the fund according to their liquidity. This term refers to the ease of trading an asset in the stock market. Therefore, it is directly related to the number of shares available for purchase and sale. Thus, in order to sell their quotas, FIIs with low trading levels may have some difficulty finding a buyer.
3. Understand how asset volatility works
As analyzing a real estate fund involves thoroughly understanding how this type of asset works, it is crucial to understand its volatility to ensure better returns. Even if a share has lower prices in the real estate market , it is necessary to consider that, in the same way that stocks can have ups and downs, real estate funds are also subject to fluctuations.
Volatility is a statistical measure that serves as a parameter on the performance of stock values, or, as in the case of real estate funds, their shares. To monitor this metric, historical data are used as a means of calculating volatility over a given period.
4. Keep track of quantitative indices
Another golden tip for anyone looking to analyze a real estate fund is to monitor the quantitative indicators on asset performance. For this, they must be evaluated jointly. Thus, possible deviations are avoided when offering a broader view of the fund’s performance in recent months.
For this, it is necessary to keep an eye on three technical indices that allow you to analyze real estate funds:
P/VPA – Price over book value;
DY – Dividend yield;
Vacancy rate .
5. Calculate the book value of the shares
This is an important aspect that must be done when calculating the division of total shareholders’ equity by total shares issued. From this, it is possible to assess whether the real estate fund is being traded higher or lower than its asset value. Even so, this calculation does not serve as an indicator of opportunities to buy cheaper FIIs.
The calculation of the equity value of the shares serves as a thermometer on the understanding of the values in relation to their value at the time of analysis. Therefore, novice investors make the mistake of calculating this data separately in order to find the right time to invest.
