UOL News Economy #13: What is the best real estate fund to live off of income? – 06/22/2022

Real estate funds (FIIs) are becoming the darlings of Brazilians. In the last three years, the number of investors in FIIs in the country has grown by more than 600%, according to data from B3, the Brazilian Stock Exchange. And do you know the focus of most of these young investors? Earn dividends.

One of the advantages is that dividends in FIIs are exempt from Income Tax. But, faced with a sea of ​​about 400 real estate funds, how do you know which are the best funds for you to live on? This is the subject of this UOL News Economy podcast.

In the fifth episode of the second season (13th edition of the podcast in general), we welcome Marcos Baroni, real estate fund specialist at Suno Research. In the chat, he talks about the best strategy to make a living by investing in FIIs and explains why you shouldn’t choose a fund just looking at a single indicator.

Top real estate funds

Brick fund or real estate income fund: It is an investor condominium. “This type of fund accumulates resources from investors to be able to buy real estate assets, such as a mall, a logistics warehouse, an office building, a hotel, etc. There are several ramifications within these brick funds”, says Baroni.

Real estate receivables fund: “At the end of the day, this is a real estate debt fund. It finances real estate operations. For example, a shopping center owner wants to expand and wants to use private resources for that. So he securitizes the receivables, which are the contracts of the people who pay rent in this mall. In other words, it anticipates this flow and, automatically, it finances this operation”, he says.

According to him, there are several possibilities within the receivables funds. “CRIs today are very versatile. They are very suitable for the needs of the local real estate operation”, he says.

Real estate development fund: Baroni says this type of fund works almost like a developer — obviously, with tax and regulatory differences, among others.

“The fund buys an area and enters with money, becoming a partner in that operation. This money is transformed into works and then into sales. Then, the fund calculates the net result of what it put in and what it took out with the sale of assets, profitably, obviously,” he says.

Fund of Funds (FoFs): “It’s like a real estate basket. You buy a share of a fund and, within it, the manager chooses other funds to buy”, he says.

Hybrid Funds: It is the funds that manage to merge these various strategies. “These hybrid funds have more versatility,” he says.

What is the best real estate fund to live off of income?

Baroni says that when investors want to build their portfolio to live off their income, they cannot think of just a single fund, but rather of a mix of funds.

“It’s possible to live off of real estate funds when you look at it as a compound [de fundos]”, he says.

However, he says, the strategy will depend a lot on other factors, such as the time you’ve accumulated quotas, your standard of living, your medium and long-term perspective and your perpetuity for your investments.

“This is where people fantasize about things. Sometimes, people want to put R$50,000 in a real estate fund and live off their income. They won’t be able to. It all depends on their ability to save. [de viver de renda] sooner”, he says.

Looking at just one indicator is not the best strategy

For Baroni, you shouldn’t select anything based solely on a single metric.

“You shouldn’t buy a real estate fund just because of the indicators. The dividend yield [dividendo pago] is the most immediate indicator, especially for novice investors”, he says.

He says, however, that it is more recommended to look at the fund’s portfolio, history, consistency, manager transparency in management reports, etc.

“The main point of the average investor is that he only comes for the yield. He makes a shallow analysis and becomes a price analyst: ‘It’s good because it went up, it’s bad because it went down’. And he doesn’t make a more adequate analysis from the point of view of essence of the real estate bias and what is behind it”, he declares.

Frequency to review the portfolio

Baroni says that, for you to keep track of your investments, it is enough to dedicate from 30 minutes to an hour a week. “If you really like it, spend a maximum of two hours a week for it,” he said.

For those who want to review their investment portfolio, Baroni says that it is recommended to do this once or twice a year.

“Mainly speaking of real estate funds, the less you move, the better. And that the changes are much more fundamental; they tend to have a much better long-term result”, he says.

What is the step by step?

The first step, says Baroni, is to understand the concept: the types of real estate fund, investment possibilities, strategies, legislation.

“This is perhaps the biggest barrier. It’s the surf zone, where you have to go through it. There’s a whirlwind of information. You don’t have to be an expert, but it’s worth understanding a little of it all”, he says.

For Baroni, the second step is to put the funds you liked best in a big basket. “That’s where the work of opening the managerial reports of each one of them comes in and evaluating. It’s separating the wheat from the chaff, even if it’s in your view,” he says.

Then, the third step is to make another filter on these selected real estate funds: by sector.

A fourth step is to make contact with the manager of these funds. “Contact by email is the coldest of all. Watching a live is a little better. Making a call warms up a little more and going in person to the manager is the best of all worlds”, he declares.

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