Regular Income through Consistent Real Estate Investments
Investing in Real Estate Savings Plans: A Guide
Investing in real estate can be an attractive way to grow your wealth, and there are several options available to you, each with its own pros and cons. This article will explore real estate funds, real estate ETFs, and real estate crowdfunding platforms.
Real Estate Funds (including mutual funds and REITs)
Real estate funds pool capital to invest in multiple properties, reducing the risk from any single asset. They offer higher liquidity compared to direct property ownership, as many REITs trade on stock exchanges. Fund managers handle acquisition, management, and sales decisions, relieving investors of operational responsibilities. Many REITs pay steady dividends from rental income, appealing to income-focused investors.
However, fund values fluctuate with broader real estate market cycles and interest rate changes. Investment performance depends on fund management skill and decisions. REIT dividends are taxed as ordinary income (unless held in tax-advantaged accounts), and funds offer fewer tax deductions than direct ownership. Investors cannot direct property choices or management, reducing personal involvement and control.
Real Estate ETFs
Real estate ETFs offer high liquidity, as they can be bought and sold quickly on stock exchanges at low cost. They usually have lower management fees than mutual funds or actively managed REITs. ETFs often require lower minimum investments and are easy to add to brokerage portfolios.
However, ETFs mostly invest in publicly traded real estate companies, missing some private-market opportunities. ETFs may have lower dividend yields compared to direct REIT investments or private real estate.
Real Estate Crowdfunding Platforms
Real estate crowdfunding platforms open access to real estate deals that traditionally require large capital, suitable for smaller investors. Investors can participate in specific projects or asset classes not available via public funds. Direct project investments sometimes offer higher returns, albeit with higher risk.
However, investments may require holding capital for 3–10 years without liquidity. More exposure to project-specific risk and platform reliability; less diversification. Investors must evaluate each deal’s merits, requiring more work and due diligence.
In summary, funds and ETFs offer liquidity, diversification, and professional management but less control and potential tax disadvantages, while crowdfunding offers accessibility to private deals with higher risk and longer commitment. Your choice depends on your investment goals, risk tolerance, liquidity needs, and desired level of involvement.
Open-ended real estate funds often have a starting investment of 50 €, while closed-end funds require 5,000 € or more. Some providers offer the flexibility to adjust or even stop savings during the term in real estate crowdfunding. Depending on the provider, interest payments in real estate crowdfunding can be either reinvested or paid out. Closed real estate funds invest in a few real estate properties or one object, do not pay out dividends during the term, and require a relatively high minimum investment amount. Real estate ETFs are traded on the stock exchange, replicate a certain stock index, have no management fees or performance fees, but are exposed to significant price fluctuations. Open real estate funds offer risk diversification, continuous dividend payments, and a relatively low minimum investment amount, but no right to participate in decisions.
Providers like Bergfürst and Exporo offer real estate crowdfunding investments, with minimum investments ranging from 100 to 10,000 €. Real estate crowdfunding allows regular investments into new projects, diversifying the portfolio, and offering flexibility with interest payments. Automatic investments are currently offered by Bergfürst and Exporo in real estate crowdfunding.
A securities account is required to invest in a real estate ETF. Classic ETF savings plans are recommended for setting up a savings plan for your own property. A robo-advisor, which optimizes your investment based on algorithms at low fees, is also recommended for setting up a savings plan for your own property. Real estate savings plans can be invested through banks, savings banks, fund companies, online brokers, or direct banks, depending on the plan chosen.
Real estate crowdfunding is not affected by price fluctuations, but there is a risk of insolvency by the project developer or payment service provider. The return for real estate crowdfunding is attractive, with returns of 3-8%. Real estate savings plans are categorized into real estate funds, real estate ETFs, and real estate crowdfunding. Long-term oriented ETF savings plans can start from 25 € per month.
- Other investment avenues in real estate, such as real-estate focused finance products like open-ended real estate funds or real estate crowdfunding platforms, can provide alternatives for investors seeking to diversify their portfolios beyond real estate ETFs.
- Depending on the chosen provider, real-finance investments in real-estate crowdfunding can offer benefits like regular investments, automatic savings plans, and the potential for higher returns, making them an attractive choice for some investors.
