Many people can’t afford to buy their own home – nevertheless many ways exist to invest in real estate. An overview about products and their risks.
Types of real estate investments
Real estate fund
The fund buys and lets buildings. You own units in the fund, whose value is determined by the value of the properties held. Your risk is primarily when exiting: funds may restrict redemptions in exceptional circumstances, so that your order to sell is either not executed or only partially executed. From 2027 you will be required to have held your units for at least twelve months, and subsequently there will be a twelve-month notice period for redemptions. Transitional rules with exempted amounts will exist for units that have been held for longer.
Real estate ETFs
In this case you also own a share of a fund. Most real estate ETFs track an index. However, actively managed ETFs also exist, where the fund manager selects the securities. Both variants do not buy houses, but instead buy shares in real estate companies, frequently from REITs. It is possible to join by means of a savings-based plan and to sell on trading days. The cost of doing so: prices fluctuate on a daily basis, and can fall strongly in times of crises.
Crowdfunding
You fund a single construction project with a lot of other investors, usually by means of a qualified subordinated loan. You have a claim against the project owner. If the project owner folds, the bank and other creditors will be repaid first: you are repaid last. You can only exit at the end of the project. Higher interest is paid as a trade-off of being exposed to risk extending up to a total loss.
Real estate bonds and real estate tokens
Investing in a bond provides you with a claim against the issuer: you lend money to a real estate company, and receive interest in return. Whether you get your money back depends on the company’s ability to pay. If your real estate bonds are in the form of tokens held in self-custody, in the event that you lose your access credentials for the wallet, you also run the risk of permanently losing access to your investment.
Closed-ended real estate funds
In this case you invest – generally through a trustee – as a limited partner in a project company. You participate in the project’s economic success, but do not become the co-owner of the property and also do not have any say in its management. The investment has a fixed term with no early redemption option. You also share the entrepreneurial risk.
Worth knowing:
Real estate funds and real estate ETFs have key information documents. For bonds and closed-ended real estate funds, once a certain placement volume is reached, a capital market prospectus is required that discloses all the relevant risks to you. It can be found on the provider’s website. Whatever you decide to invest in: rising interest rates force down the value of real estate and there are costs entailed in all kinds of investments. The key information document, capital market prospectus and contract documents inform you about the costs and risks you may face. Read these documents carefully before signing anything.
Define your financial goals, and think carefully about the level of risk you are willing to take. Always compare several offers before reaching a decision!
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Index:
a basket of assets designed to track a particular market, e.g. the ATX.
REIT – Real Estate Investment Trust:
Exchange-listed real estate company that is required to distribute a large proportion of its profiles to its shareholders.
Crowd:
a large number of investors that grant loans via a crowdfunding platform.
Token:
a digital unit representing rights or assets on a blockchain.
Limited partner:
a partner in a limited partnership, with liability limited to their contribution and who is not involved in the management of the partnership.