What is Real Estate Hedge Funding?

What is Real Estate Hedge Funding?

Capital Markets CIO Outlook | Sunday, January 24, 2021

Although hedge funds usually favor liquid assets, they can invest in various types of investment products. Hedge fund managers are adding real estate to their lists of nontraditional investments.

Fremont, CA: A hedge fund is a kind of investment vehicle and a business structure that aggregates capital from different investors and invests that capital in securities and other investments. Hedge funds are not the same as mutual funds as they take on more risks, and their advantages are not restricted by regulators.

Hedge funds that invest in real estate are called real estate hedge funds. Almost 40 out of the total hedge funds in operations invest in this space. These funds invest in publicly-traded real estate companies, particularly real estate investment trusts (REITs).

Although hedge funds usually favor liquid assets, they can invest in various types of investment products. Hedge fund managers are adding real estate to their lists of nontraditional investments.

Real estate hedge funds mainly invest in REITs, which is a corporate entity structured similar to a mutual fund that invests entirely in real estate and is tax exempted. REITs, in return, need to pay at least 90 percent of their income as dividends. However, that income may be subject to tax for the REIT’s investors.

A real estate hedge fund also invests its money by acquiring actual properties, especially underperforming ones, at a low price. These properties can be acquired in a specific region or around the world, but they are usually up for sale because of a lack of liquidity on the seller’s part. Unlike REIT investing hedge fund, these real estate hedge fund owns real estate.

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