Spending tens or hundreds of millions, or even billions, to open a shopping mall or turn an apartment on the first floor into a store or café is not necessary. You can invest in commercial real estate with a relatively small amount on hand through mutual funds (Mutual Funds). They collect funds from investors and invest them, and in exchange the participants of the fund receive a share – a security, confirming the right of ownership. Mutual funds can deal in a variety of assets – stocks, bonds, businesses and, in fact, commercial real estate.
Depending on the liquidity of the asset, i.e. the ability to sell it quickly, mutual funds can be open, interval, exchange-traded and closed. Real estate funds are usually closed: you can simply buy shares at any time in the bank applications, but you can redeem them after the closing (the terms are specified immediately). Exit the fund before the scheduled date can only resell the unit to another person.
Profitability here provides a change in the value of the share: it grows with the price of real estate and fees from tenants. The frequency of repayments depends on the strategy:
If the fund invests in commercial real estate that is under construction, you will only be able to make a profit once it has been commissioned. No money will accrue to the account until the unit is sold.
If the fund buys completed properties, unit holders receive interim rental income every quarter. You don’t have to wait until the unit is redeemed to receive income. Agreements with tenants are signed for a long period (5 to 15 years), which ensures sustainability of payments.
In any case, after the closing of the fund real estate is sold, and the money is distributed among the investors. The amount of the initial deposit increases at the expense of profits from the increase in property prices.
There are risks in this way of earning money. For example, premature departure of tenants or a decline in the market value of the property can affect the profitability. To ensure that the unit is stable, you should carefully study the mutual fund before buying: check its history, reviews, and see what kind of clients it works with.