Real estate funds vs real estate: which is the best investment? – 01/06/2022

Investors looking for passive income often turn to the real estate market, whether buying properties for rent or buying assets such as shares in real estate investment funds (REIFs). As it is a still incipient market in Brazil, real estate funds are off the radar of most Brazilians, perhaps because of their inexperience in the investment world. By tradition inherited from grandparents and great-grandparents, many people still prefer to buy or even build a property for rent.

However, there are a number of factors that need to be taken into account before you invest a good amount of money in a property with the intention of earning extra income every month. Depending on your profile and objective, this may not be the best alternative.

Therefore, it is important to know other simpler ways to make money investing in the real estate market, and FIIs are an alternative that needs to be taken into account by those looking for assets with greater liquidity and profitability. Rafael Bevilacqua, chief strategist and founding partner of Levante Ideias de Investimentos, talks about the topic below.

Knowing the FIIs

The analyst says that the first thing that the investor needs to keep in mind is that this category of investments fits as variable income, that is, the shares of these funds can fluctuate in price.

Even so, real estate funds are seen as less volatile investment options compared to other modalities of variable income, such as shares. This is because these funds aim to provide passive income to the investor, transferring amounts monthly in the form of dividends.

“Each quota works as a small slice of the FII, and receives a portion of the income provided by the assets that are part of this fund’s portfolio”, says Bevilacqua.

Real estate funds are divided into different segments, according to the types of assets in which they allocate their resources. Initially, we can divide the fund market into four broad categories:

1) Brick funds – invest in the purchase of real estate to earn income from the rental of these assets.
2) Development funds – invest in real estate projects to profit from the sale or lease of real estate after completion.
3) Paper funds – invest their assets in financial assets linked to the real estate market, such as Certificates of Real Estate Receivables (CRI), Mortgage Letters (LCI) and Mortgage Bills (LH).
4) Funds of Funds (FOF) – buy shares of other funds, seeking to bring more diversification to the investor’s portfolio.


To measure the average return offered by rental properties, an indicator called rental yield is used, which is the ratio between the average rental price and the average sale price of properties.

According to the FipeZAP+ Rental Index, the average rental yield for rental of residential properties in Brazil was 4.73% per year in February 2022. In the case of commercial properties, the yield was 5.58% per year in same range.

This means that for every BRL 100,000 invested in real estate in Brazil during this period, the average annual return on rent was around BRL 4,700 for residential properties and BRL 5,500 for commercial properties.

In the case of real estate funds, average profitability is measured by the dividend yield, calculated by dividing the dividends paid to shareholders by the unit value of a fund’s shares.

In February this year, the average dividend yield of the IFIX (B3 Real Estate Investment Funds Index) was 8.8% per year, that is, for every BRL 100,000 invested in real estate funds in the period, the average annual return was BRL 8,800.

“And the best of all is that the income of the FIIs is exempt from the collection of Income Tax”, says Bevilacqua.

Diversification and liquidity

In addition to profitability, other factors that every investor needs to consider before deciding where to allocate their money are diversification and liquidity, according to Rafael Bevilacqua.

“When we talk about diversification, we are referring to the ability to divide your assets among different assets, with the aim of reducing exposure to risk and making the most of the various opportunities that the market offers”, says the expert.

“When investing directly in real estate, it becomes more difficult to diversify your portfolio when you don’t have a multimillion-dollar asset, since the price of a home in Brazilian capitals starts at R$200,000. Not to mention that some categories of real estate , such as commercial and logistical ones, tend to start at much higher prices, making them inaccessible to ordinary investors”.

In the case of real estate funds, it is possible to build a very diversified portfolio without having a large amount to invest. The shares of real estate funds are negotiated individually, and start at prices below R$10.00, with most funds trading in the range between R$50.00 and R$200.00 per share.

Bevilacqua says that, in addition, it is possible to build a portfolio with shares of FIIs that invest in different segments of the real estate market, such as shopping malls, real estate receivables, logistics warehouses, among others, so that you can take advantage of the best of each category.

Liquidity refers to the ease of converting a given asset into cash. “Eventually, you may want to sell part of your assets to have the money from the transaction, and everyone knows how bureaucratic and time-consuming the process of selling a property can be”, declares the analyst.

“In the case of real estate funds, you can select those that have the highest liquidity to integrate your portfolio, and so, if you eventually want to sell part or all of your shares, you can carry out the transaction in a few seconds, using the your securities dealer.”

Building an equity with FIIs

Only a minority of investors who have already managed to accumulate considerable wealth manage to have a few hundred thousand reais to buy real estate as a form of investment, that is, there is a great barrier to entry in this market.

“If you are a beginner investor interested in building wealth, real estate funds also offer a great advantage: it is possible to invest small monthly amounts thinking about the long term. In addition, you can keep the dividends paid by the shares of the funds you have in your portfolio and use them to buy new shares. That way, you can accelerate the process of multiplying your equity”, says Bevilacqua.

There are advantages, but it requires care

The analyst says that real estate funds offer a number of advantages when compared to investing in real estate, such as higher average profitability, greater liquidity and a wider range of options to build a diversified portfolio with a focus on obtaining passive income.

“However, it is necessary to know how to separate the wheat from the chaff: not all real estate funds are good investment options, and those who have low quality assets in their portfolios can cause you losses”, he says.

Levante’s recommended portfolios feature some of the real estate funds that the review house considers good options at the moment. Are they:

XP Malls FII (XPML11), in the shopping center segment.
Tellus Properties (TEPP11), in the corporate slabs segment.
CSHG Logística (HGLG11), from the logistics warehouses segment.
Kinea Renda Imobili√°ria (KNRI11), which operates in the segments of corporate slabs and logistics warehouses.

Access Levante’s full report on real estate funds here.

Portfolios according to profile

For those who have not yet picked up the investment recommendations, they are below:

– Wallet for those who do not accept any risk

– Wallet for those who have a more conservative profile, but accept a little risk

– Wallet for those who are more moderate

– Portfolio for those who accept more risk

– Portfolio for those who accept high risk

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