Buy-to-Let Collective Investing: Exploring the Rise of AIFs and REITs in Property Investment

Collective investing in property is gaining momentum across the world. Western economies invented the concept of Real Estate Investment Trusts (REITs) via which investors could participate in buying real estate portfolios which would otherwise be out of their reach. REITs are now commonplace in emerging markets too.

 

There are several other investment vehicles now which are ideal for collective investment opportunities – some regulated and the others unregulated. One such popular vehicle is AIF – Alternative Investment Fund. These are registered at or regulated by a relevant financial authority in the country of domicile. Examples include FCA in the UK, SEBI in India or CySec in Cyprus. Regulation makes the product more transparent and assures corporate governance on the use of Funds.

There are several reasons that can be attributed to the popularity of collective investment vehicles like REITs and AIFs.

 

1. Investment Amounts – Collective Investment AIFs can accept small investments as low as 50 thousand Euros in some jurisdictions while shares of listed REITs can be bought for a few hundred $. The price of one piece of a meaningful property will most likely be higher than that.
2. Investment Access – Most collective investment vehicles eventually reach tens of millions in available capital thus having access to high quality, yield bearing assets. This is out of reach for retail investors on their own.
3. Returns on Investment – Beyond 1, 2 or 3 properties that an individual might own, return on investment is binary. If you are renting out your property for a return on investment, it could either be occupied or vacant. If it is occupied, you earn a return; if not, you do not earn anything. For Collective Investment vehicles, it is not binary. If a few of the properties are vacant, it does not end in zero return on investment.
4. Return of Investment / Liquidity – Liquidity is another likely factor. Selling a piece of real estate at the right price could take several months or quarters, sometimes over a year if you are at the wrong time of the property cycle. However, units or shares of Collective Investment vehicles are continuously valued if they are listed, or periodically valued (usually quarterly) if they are unlisted securities. Exit is usually quite easy in such cases.
5. Asset Management – If you are a busy professional or businessperson, and not a professional landlord, asset management can be quite complicated. Managing tenants, keeping up with taxes and other compliances, upkeep of the property, etc. can be very time consuming and not worth the time spent for 1 or 2 properties that you might own.

There are several initial steps to take before making a Collective Investment work for you.

 

1. REITs and AIFs are mostly specific to a certain region, and a strategy. Look for vehicles which accomplish your goals of investing in a particular country or region.
2. Check whether the vehicle is Equity based or Debt based. Equity strategies can be medium or high risk with commensurate internal returns whereas Debt strategies can be medium or low risk with lower internal returns than Equity strategies.
3. Check other aspects such as minimum investment thresholds, lockup periods, target or indicative returns, acquisition strategies, etc.
4. Once you have identified these key aspects, you can subscribe to the REIT or the AIF. Listed vehicles are available via various securities platforms while unlisted securities are available via global wealth and investment managers.

AIFs are now gaining momentum for Golden Visa investors as well. In 2018, CMVN started authorising investment in Venture Capital Funds which qualified for Golden Visa for Portugal. Similarly in 2019, Greece announced the eligibility of AIFs investing exclusively in Greek real estate to qualify for the Greece Golden Visa.

 

In general, AIF investing is gaining momentum primarily because of the investment ticket size. While one would need to invest upwards of 300 thousand Euros in buying a decent property in Europe, the same investor can still ride the property investment cycle with investments as low as 50 thousand Euros – a fraction of the property price.