Real estate investing: Generate returns with real estate funds and similar investments

Invest in real estate. Take advantage of attractive investment opportunities.

There are many ways to invest in real estate, from direct purchases and equities, to real estate funds and crowdinvesting. Read what investors should keep in mind, and why real estate investments are particularly smart at the moment. 

Real estate investments profit from low interest rate levels

Interest rates are at historic lows, which have many people worried about their savings and investments. If you're looking for profitable investments, think outside the box and consider alternative investments. Real estate investments in particular are even benefiting from these continued low interest rates, and offer interesting long-term opportunities for returns.

There are many different ways to invest in real estate. Apart from the classic method of direct purchase, there is a wide range of options such as investing in open-end and closed-end real estate funds, real estate equities, and, as of late, crowdinvesting for real estate. See the section on real estate investments via crowdinvesting for details.

Comparison: Returns on real estate investments in Switzerland

Real estate investments pay off over the long term 

Total return on Swiss real estate investments (index: January 1, 2000 = 100)
Last data point: June 26, 2020
Sources: Datastream, IAZI, Credit Suisse

Historical performance and financial market scenarios are not reliable indicators of future results. You cannot invest in an index. The index returns shown do not represent the results of actual trading of investable assets/securities. Investors pursuing a strategy analogous to an index can achieve lower or higher returns, and have to take into account the associated costs.

What you need to bear in mind when investing in real estate

Before investing in real estate, you need to be aware of a few pointers for finding the ideal investment:

How much can you diversify your portfolio? Putting all your eggs in one basket is risky. This is why effective risk diversification is important. However, depending on the type of real estate investment, it can also be costly. 

  • How long will the capital be tied up? Investments have different terms to maturity, and until then the capital is not accessible. Investors should decide from the start how long they can keep the invested funds on hold. 
  • What is the minimum investment size? The amount of capital you have available plays a major role when investing in real estate. Investments in real estate funds or crowdinvesting projects require less capital than purchasing real estate. 
  • What expenses will your investment generate over time? Think about broker's fees, management fees, and/or maintenance of the property. Don't dismiss these!  

Invest in real estate. See your options in detail. 

The various types of real estate investments differ in key areas that you should consider carefully before deciding to invest. We have put together an overview of what investors should know about each option:

Purchase of real estate

There are a number of advantages to buying a property. For instance, you can occupy the property yourself and use it as a retirement provision, or generate a regular cash flow by renting it out. If the value appreciates, investors can make a profit when they are ready to sell. Low interest rates also mean that the costs of mortgage financing are relatively low at present.

However, don't forget that purchasing a property requires a large amount of capital and the money you invest is tied up. This is also what makes effective diversification across several properties so expensive. Managing real estate for investment purposes also means a great deal of work.

Real estate funds 

Real estate funds combine the capital of all investors to invest in real estate portfolios. The risk is thus effectively diversified. However, investors have no say in which properties are chosen, and the costs for fund management reduce the returns. It is important to distinguish between open-end and closed-end funds.

Open-end real estate funds have flexible assets. Normally, investors can put their capital in the fund or withdraw it again easily. When the assets grow, the fund can invest in new real estate, but in the event of a loss, properties may have to be sold in some cases. Units in open-end funds are suitable for small-scale investors too.
Closed-end real estate funds, however, generally have a higher minimum investment and invest in a few selected properties. Once the capital has been collected, the fund is closed and the money is tied up until maturity, because units cannot be sold without complications.

Real estate equities

Investors can access companies from the real estate sector on the equity market, which allows them in turn to profit from the growth opportunities on the real estate market. Equities can also be traded easily at any time and offer good diversification options. The downside of real estate equities is that volatility is relatively high, which increases the short-term risk for this type of investment. What's more, real estate equities are more dependent on the general performance of the equity market than other real estate investments are.

Real estate investments via crowdinvesting

Crowdinvesting allows investors to put a small amount of money into select properties with good return potential via an online platform. This offers small-scale investors an exciting option and makes diversification simpler. Since the terms to maturity are usually short (up to five years), the invested capital is not tied up for too long.

Crowdinvesting also has risks, however. For instance, high-risk real estate projects that did not get bank financing may be listed on these online platforms. This is why it's crucial to carefully review the platform and the actual projects in order to avoid unwelcome losses.

Investing in real estate: A comparison of options

Investing in real estate: A comparison of options 

Source: Credit Suisse

Supplement your portfolio with real estate investments

Especially in these times of historically low interest rates, real estate investments are an attractive addition to your portfolio and can go a long way to improving your risk/return profile. The wide array of options, however, makes them a very complex investment. It is essential to weigh up all the options carefully before making a decision. Professional advice can help you ensure that the investment is well matched to your personal needs and situation.  

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