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Will real estate funds survive?

A real estate fund is a mutual fund, which invests in mainly mortgages and real estate. The purpose of the fund is to produce income and capital gains for its investors. Real estate funds in Florida invest in residential and commercial real estate. These funds have historically been dominant in the real estate sector; however, many are speculating that its sector dominance could be nearing an end.

The real estate funds in the U.S. returned an average of 37.44 percent annually last year, which leads all sector categories. Also, in the past three years, real estate funds bested its closest competitor in the sector by 21.63 percent annually. Global real estate funds reported an average annual return of 19.58 percent, which leads the global real estate sector.

Experts suspect that real estate funds may not be able to keep up their sector dominance, due to a large amount of real estate investment trusts. This is largely due to the fact that a large portion of the real estate funds consist of real estate investment trusts. Investors question whether the common strategy used by real estate investment trusts of low interest rates, supported by subdued inflation, is a strong foundation for investment over the long run.

Despite the type of entity that is purchasing commercial real estate, it is always a good idea to do thorough market research before making the investment. This type of investment can be quite profitable or it can backfire and cause significant loss. Also, purchasers in Florida should make sure they understand all applicable real estate laws governing the transaction. It would be unfortunate if a loss was caused by a simple oversight in a contract.

Source: Investors.com, "3-Year Run: That's How Long REIT Funds Have Outperformed, But Can They Continue?" Paul Katzeff, Aug. 10, 2012

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