Last updated: 27th October 2021
In this article you’ll learn:
A property fund allows you to buy a share in property portfolio which someone else manages for you.
A simple way to think of it is as a box filled with objects. The fund is the box, and the objects are the properties. If you buy a 1% share in the box, you get a 1% share of all the objects (properties) in it.
Because the properties are rented out, you’ll get a 1% share of all rental profits. And as the value of the properties rises or falls, the value of your share changes accordingly.
It doesn’t matter when you buy your share: you get exposure to all the property that’s already in the fund and anything else the fund decides to buy in the future.
Let’s look at the pros first:
And now for the cons:
You’ve probably already got a good idea from the lists above as to whether property funds are right for you, but let’s dig into some more detail about who they are most suited to:
Time poor investor: If you’re somebody who’s busy working long hours or just has other things that you want to do, then having somebody else make investments for you could well be attractive.
New investor: If you’re new to property and want to get some experience in the sector before making a big commitment, then investing in a fund could give you the exposure to the market you need to build your understanding.
Cash poor investor: If you’re struggling to save up to buy your own property or get a mortgage at an attractive rate, investing in a fund could be a way of getting into property earlier.
Risk averse investor: If the thought of pouring all your money into one property fills you with fear, investing via a fund offers a way to spread the risk through diversification.
Passive investor: If you’re not really that into property but want some kind of allocation to bricks and mortar, investing in a fund lets you do this without the hassle of building your own property portfolio.
It’s important to do your research before parting with your hard-earned cash.
Consider these three Ws:
What: There are funds that invest in just about every type of property you can imagine. Decide what sub-set of property you want exposure to. Is it family homes, student accommodation, office blocks or something entirely different? Once you’ve made up your mind, you can then go looking for funds that invest in that type of property.
Where: Different areas perform well at different times, and some areas tend to perform better than others. You’ll want to know what locations a fund is investing in and establish how well these locations are likely to perform in terms of rental profits and capital growth.
Who: Look at the fund manager’s performance and credentials. You won’t be making the decisions, so you need to trust the people that will be making them. Are they people that you believe in?
Investing in a property fund has its pros and cons, just like any other strategy. It’s not a failsafe way to make a passive income.
Whether it’s right for you depends on your individual circumstances: what your goals are, your priorities, how much time and money you’re willing to put in etc.
If investing in a property fund is something you’re interested in, then you might want find out more about the fund we’ve launched at portfolio.co.uk