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Full comparison: Real Estate Fund vs Real Estate Crowd funding

The real estate crowd funding was created in the United States around 1885, but arrived in Brazil only in July 2017.

This new way of investing brings together a series of investors with the objective of financing a particular real estate project that, within the agreed period, returns to investors the financed money plus interest.

Real estate funds (FIIs), in turn, were established in Brazil through Law n. 8,668 in 1993 and brings together a number of investors in funds that offer various real estate projects.

Know now the similarities and differences between real estate funds and real estate crowd funding?

How are investments made?

Real Estate Funds

Real Estate Funds are made up of investments that are divided into fractions called quotas, and belong to investors.

The acquisition of shares must be carried out through a stockbroker or through an institution authorized by the Brazilian Securities Commission (CVM).

Real Estate Crowd funding

Investment crowd funding is simpler. Investors only need to have an account on a platform and then reserve their investment in a specific offer.

A contract is signed between the company and the investor and, finally, the investor makes his investment through a TED or bank slip.

What are the risks?

Real Estate Funds

There are several different types of real estate funds and depending on the strategy of each one, there are risks that are inherent to only one or two types of funds.

To address all the risks of investing in real estate funds, an entire article dedicated to the subject would be needed.

Still, it is possible to cite a risk that encompasses all types of real estate funds, mismanagement.

A poorly managed fund is extremely harmful to investors, which can result in the fund’s unsustainability and loss of market value.

Real Estate Crowd funding

The risk of this investment is related to the possibility that the venture will not honor the debt. Often, the reason for this problem is that projected sales are not realized.

It is up to the platform that this venture offers, a good analysis of the entrepreneur and the venture to understand if at the end of the period the projections will materialize.

In the case of Glebe, projects that have legal problems, immaturity in the market analysis, or that do not have sufficient equity – cash on hand, receivables, units in stock – to honor the debt in case of non-payment are not accepted.

What about costs?

Real Estate Funds

Initially, there is the cost of the operation itself, which is charged by the broker.

Once the shares are purchased, the fund will have an administration fee that can vary between 0.25% to 2% per year. In addition, many funds charge a performance fee if profitability exceeds the benchmark.

Finally, there is a 20% deduction for income tax on net income on the sale of shares. It should be noted that the payment of income tax is the investor’s responsibility, under penalty of constituting a crime of tax evasion, pursuant to art. 1 of Law 8.137/90.

Real Estate Crowd funding

Real estate crowd funding has a zero rate for the investor. Fees are charged to the enterprise, not interfering with the profitability projected for the investor.

At the end of the stipulated return period, the investor will receive in his account the amount invested, plus the income, after deducting income tax. All you have to do is declare it to the Internal Revenue Service.

What is the profitability?

Real Estate Funds

To assess the profitability of real estate funds, the appreciation of the shares acquired and the dividends received is taken into account. Monthly profitability is calculated by adding the dividend yield to the share appreciation.

And to calculate the valuation of the shares, just subtract the final price from the initial price and divide the result by the initial price, according to the formula below:

Valuation = (final price – initial price)/initial price

In any case, profitability will be directly influenced by the administration of the fund, which must be done responsibly so that it remains sustainable and, most importantly, profitable in the long term.

Real Estate Crowd funding

On the other hand, the profitability of real estate crowd funding is previously projected according to the study of the project, taking into account all the factors mentioned in the previous topics. For this reason, at the end of the project, profitability is considerably close to the projection made.

Conclusion

It is concluded, therefore, that real estate crowd funding is an investment that does not have bureaucracy, low cost, with less risk – if all stages of the feasibility study are properly followed – and may have higher profitability than other available real estate investments in the market.

Each product has its peculiarities and it is up to the investor to assess, according to the strategy outlined, whether or not it is worth adding the investment to their portfolio.