Choosing REITs or REIT mutual funds involves evaluating investment objectives, financial picture, diversity, and past performance. REIT mutual funds offer small investments and diversification, protecting against losses in one sector. The real estate market and past performance affect performance. Past performance is a good predictor of future performance.
Choosing real estate investment trusts (REITs) or REIT mutual funds is usually based on a number of factors. These may include evaluating investment objectives in terms of profitability and current financial picture. Another consideration for choosing REIT mutual funds can include the diversity that the fund offers in terms of ownership types. Because of the risks associated with most investment vehicles, you may also want to take into consideration current housing market conditions and the past performance of REIT mutual funds.
The short- and long-term investment goals you have can be the catalyst for your decision to invest in real estate mutual funds. The amount of family income and the amount of money you have set aside to invest can help determine the best options. Traditional real estate investments usually require large sums of money from investors. With REIT mutual funds, you can invest small amounts of money over a period of time, have ownership in ownership, and not incur a huge financial risk.
Essentially, REIT mutual funds consist of a diverse mix of properties such as commercial, residential, and healthcare facilities. Some investors see this as an advantage to investing in a REIT mutual fund. A diversified REIT mutual fund may still have profit potential. When one sector of the housing market represented in the fund underperforms with losses, another sector can post gains.
A regular real estate mutual fund can only have one type of real estate to invest in. For example, an office building real estate investment trust can lose money if the economy is bad and the companies that lease the office space go out of business. Diversifying REIT mutual funds has the potential to protect you from this loss if the fund’s residential and healthcare properties are thriving.
The condition of the real estate market has the potential to affect the performance of REIT mutual funds. A recession and high unemployment can cause some REIT mutual funds to fluctuate in value. The performance of commercial properties because businesses are not expanding could reduce the amount of profits.
Most people may select this type of investment based on the reputation real estate investing has for producing guaranteed returns. Typically, you can review the mutual fund’s performance back to the last five years or more if this information is available. Past performance is usually a good predictor of how the REIT mutual fund might perform in the future. If the performance shows that the fund has been making a relatively constant profit, you might consider investing in it.
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