Anyone who wants to invest in real estate thinks primarily of direct investments. This means: A property is purchased in order to subsequently generate income from it. However, there are several options on the market for indirectly investing in concrete gold. One of these options are so-called real estate ETFs. – ETF is the abbreviation for Exchange Traded Funds and means something like funds traded on a stock exchange. ETFs are also often referred to as index funds or passive funds. In this context, REIT is the abbreviation for "Real Estate Investment Trust". Put simply: REIT stands for companies whose business is active in the real estate sector. – Some real estate stocks are particularly risky, but give investors the chance of an above-average return. Real estate ETFs give investors and savers the opportunity to invest indirectly in concrete gold. However, you should know that investing using ETFs is actually a very indirect way. A brief overview of the indirect forms of investment At this point we would like to briefly mention the indirect investment opportunities in real estate that exist on the market. These are the following forms of investment: – Open real estate funds – Closed real estate funds Crowdinvesting (in real estate) – Real estate stocks – Equity funds ETFs In this article, we would like to address the topic of ETFs on real estate below, as this variant offers investors a very good opportunity to invest broadly and indirectly in concrete gold. What are ETFs? For a better understanding, we would like to briefly explain what ETFs are actually about. ETF is the abbreviation for Exchange Traded Funds and means something like funds traded on a stock exchange. ETFs are also often referred to as index funds or passive funds. This is because a specific index or a basket of shares is being replicated. ETFs often refer to a stock index. A DAX ETF would therefore replicate the composition of the German stock index with the 30 stocks it contains as faithfully as possible. In addition to stock indices, there are other underlying assets that ETFs can reference. These include, for example, commodity indices, precious metal indices or bond indices. The advantages of Exchange Traded Funds are – especially in comparison to actively managed funds – the lower fees for the investor and the broad diversification. What is a real estate ETF? Now let's get to the subject of real estate ETFs. These are Exchange Traded Funds, whose portfolio mostly consists of so-called REIT shares. In this context, REIT is the abbreviation for "Real Estate Investment Trust". Put simply: REIT stands for companies whose business is active in the real estate sector. These may be the following stock corporations in particular: – housing associations – real estate managers – Large brokerage companies – investment companies, focus on real estate REIT shares are therefore securities issued by a company (stock corporation) that is active in the real estate industry. Real estate stocks as a basis If you like, ETF properties basically combine investing in concrete gold with investing in the REIT stocks discussed above. This also results in a combination that is characterized by the fact that real estate ETFs combine both the advantages of real estate investments and the shares mentioned.In this case, ETFs and real estate are not to be seen separately from each other, but with a real estate ETF you invest in companies from the real estate industry and thus – albeit indirectly – also in concrete gold. How do real estate ETFs work in detail? How real estate ETFs work is relatively easy to explain and usually understandable for investors who are dealing with this topic for the first time. It is important to know and understand that an Exchange Traded Fund always needs a basis. For real estate ETFs, this basis is an index, which in turn contains stocks of companies that are active in the real estate industry. As a result, it is an industry index that forms the basis of index funds. Interesting and important to know: For this reason, real estate ETFs differ significantly from closed-end real estate funds, for example. With these closed funds, the fund company invests directly in concrete gold, while real estate ETFs only replicate an index consisting of a basket of specific real estate shares. There are several options for how the corresponding ETF is put together. For example, some real estate industry indices are based on countries and regions, with the following five groups in particular being common from a regional perspective: – Worldwide – United States – Asia – Europe – Eurozone There are a number of well-known indices for real estate stocks on the market, such as the DJ US SPECIALTY REITS. 7 advantages of real estate ETFs If you are interested in a possible investment using real estate ETFs, you should first find out about the advantages and disadvantages of these special index funds. First, let's look at the benefits associated with investing in real estate ETFs: – Significantly cheaper than actively managed real estate funds – High flexibility – Immediate liquidity by selling the ETFs on the stock exchange (advantages compared to open real estate funds, as there 2 years holding period) – Easy to use – Low capital investment (compared to closed funds or direct investments) – High degree of diversification (compared to closed funds or direct investments) – No maturities So there are actually a number of advantages that a real estate ETF can offer – both in comparison to real estate funds and to direct investments. Compared to actively managed real estate funds, real estate ETFs have a particular cost advantage. While open real estate funds sometimes have a total expense ratio of over two percent, the expense ratio for index funds is usually only between 0.4 and 0.6 percent. The main advantage compared to a direct investment is above all the significantly lower capital investment. As a rule, you can invest in real estate ETFs from as little as 50 euros and even integrate the corresponding funds into an ETF savings plan. In addition, you remain flexible at all times, because you can sell the fund shares on the stock exchange on a daily basis. This also guarantees liquidity at all times. What are the disadvantages of real estate ETFs? Exchange traded funds, which are based on a basket of real estate stocks or a real estate index, not only have advantages. In the following, we would first like to name the most important disadvantages of this form of investment: – Risk of price fluctuations- Return capped on the performance of the base index – Not a pure tangible asset – Additional risks of a stock corporation These disadvantages are to be considered in particular in comparison to direct investments. Of course, you don't invest your capital directly in concrete gold when you decide on real estate ETFs. As a result, you do not have a pure tangible asset, as would be the case if you were to purchase real estate. In addition, the possible return is capped to the extent that it generally cannot be above the average of the share prices performing in the underlying index. You will not find the possible price fluctuations to this extent with direct investments in real estate either. The reason for this is that the basis for the ETF is shares. Overall, however, there are significantly more advantages than disadvantages associated with investing in real estate ETFs.According to which criteria should I select real estate ETFs? It certainly comes down to personal preferences. We have already addressed a possible selection, namely in which countries or which regions the corresponding stock corporations are based or where the real estate that forms the basis for the company's business activities is located. Furthermore, you could make selections of the ETFs according to whether dividends are regularly paid for the corresponding stocks and how the price development has been in the past. Some real estate stocks are particularly risky, but give investors the chance of an above-average return. Therefore, the composition of the index or the basket is particularly important here, i.e. which stocks are represented there.Another distinguishing criterion and thus a decision criterion can be whether the ETFs are synthetic or physically replicating. With physical ETFs, the corresponding real estate stocks are actually in the fund's portfolio, while this is not the case with synthetic ETFs. Here the value is basically only represented by means of swaps or other derivatives. The overview contains the following decision criteria, which you can use to find the right real estate ETFs: – Countries/Region – Dividend Payment – Risk/return (stock price movements) – Synthetic or physical ETFs What real estate ETFs are there on the market? Below we would like to give you a small selection of ETFs based on real estate or real estate shares in which you can currently invest. This is not a review or a selection of the best ETFs, instead we just name a few well-known representatives from this category. These include, for example:* Lyxor FTSE EPRA/NAREIT Global Developed UCITS ETF Dist (EUR) ISIN: LU1832418773 iShares Developed Markets Property Yield UCITS ETF ISIN: IE00B1FZS350 iShares STOXX Europe 600 Real Estate UCITS ETF ISIN: DE000A0Q4R44 SPDR DOW JONES GLOBAL REAL ESTATE ETF ISIN: IE00LY1B8 REAL ESTATE ETF ISIN: FR0010833558 LYXOR MSCI WORLD REAL ESTATE ETF ISIN: FR0010833574 LYXOR ETF MSCI USA REAL ESTATE ISIN: FR0010833566 Please note our risk warning! Mediation does not take place. Conclusion on real estate ETFs as an investment Real estate ETFs give investors and savers the opportunity to invest indirectly in concrete gold. However, you should know that investing using ETFs is actually a very indirect way. You invest your money in fund shares, whereby the respective fund in turn usually has shares in companies in the portfolio that are active in the real estate industry. On the one hand, this allows you to achieve good diversification. On the other hand, however, a few other factors also influence the value development and thus the return, while with a direct investment in real estate you only have the price development on the market as the basis for your personal profit or possible losses. Real estate ETFs are particularly suitable for small investors and savers who, with little capital, would like to benefit at least indirectly from possible further increases in real estate prices on the market.
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