Property Investment Funds – Open Ended vs. Closed Ended

Property investment funds can be a good way of investing in property as they offer the advantages of spreading risk and avoiding ownership issues.  In a relatively developed market it is important to identify the advantages and disadvantages of each fund type.  Choosing the right type of property fund requires an understanding of these characteristics and how they can affect returns, risk and liquidity.
Open Ended Funds
An open-ended fund is listed on an exchange and the shares are therefore publicly tradable.  This presents the advantage of effectively being able to “cash out” at any time and gaining direct access to your investment capital.  It is however important to take into account that an open-ended property fund only has a limited amount of cash reserves and by far most of the money is invested in bricks and mortar.  Things can go desperately wrong if there is a “run” on the fund, with everyone wanting to take out their money.  Logically, the fund cannot sustain its cash reserves under these circumstances, assets then need to be liquidated quickly and are ultimately sold at a discounted rate.  Many of the funds we read about as having “crashed” are subject to this type of scenario.  As long as everything goes well, open-ended funds offer greater flexibility but tend to be more sensitive if disaster strikes.
Closed Ended Funds
Closed ended funds are a collective investment model based on issuing a fixed number of shares or bonds.  The disadvantage of this type of fund is that your money is often tied up for the length of the investment and generally cannot be accessed at all.  Closed ended funds tend to offer higher returns than open-ended funds, but it is important to pay very close attention to the returns distribution and financial model.
Before investing in any property fund, ask questions such as:
·       Is there a fund manager who gets paid regardless of the fund’s performance?
·       If the fund performs poorly, do the principals still get paid?
·       Is it a development fund, can it be subject to building delays and therefore delays in returns?
·       Are the returns offered realistic for the duration of the fund?
·       Who is protecting the assets?
·       Does the financial model show a sensible bad-case scenario?
·       Are there sufficient buffers in the financial model to allow for realistic situations?
·       Most importantly, do you share in the profits if things go well?
Written by Mark Lloyd, Managing Director of Max Property Group UKand Director of “How to become a Property Investor” company – Property Mastery Academy.

If you would like to receive more information on this topic, or indeed would like more information about one of Max Property Group’s property funds, do not hesitate to contact us.

Blog Post Title

What goes into a blog post? Helpful, industry-specific content that: 1) gives readers a useful takeaway, and 2) shows you’re an industry expert.

Use your company’s blog posts to opine on current industry topics, humanize your company, and show how your products and services can help people.

Don’t miss our next event

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed venenatis dignissim ultrices. Suspendisse ut sollicitudin nisi. Fusce efficitur nec nunc nec bibendum. Praesent laoreet tortor quis velit facilisis faucibus. Maecenas sollicitudin lectus diam, non vehicula arcu ullamcorper ac. In pharetra, est vitae interdum tincidunt, urna ligula rutrum tellus, sit amet pharetra purus magna eu enim. Sed iaculis imperdiet nisi, et pulvinar mauris gravida maximus. Phasellus vitae lorem at sem mattis volutpat. In eget dictum dui. Quisque nec sapien at massa mattis semper. Ut ac malesuada turpis. Fusce eu nulla vehicula, tincidunt dui ultrices, fermentum felis. Aliquam lectus nisi, feugiat ut aliquet sed, posuere sed libero.

Pellentesque consectetur massa nec nulla fermentum, at tincidunt elit volutpat. Duis vulputate placerat tortor, sit amet eleifend mauris tincidunt sit amet. Aliquam a maximus ligula. Phasellus nec sapien sed tellus tempor eleifend id a erat. Donec convallis bibendum posuere. Quisque mollis imperdiet malesuada. Suspendisse eget dictum massa.

Phasellus ac posuere nibh, in finibus nulla. In diam arcu, luctus sit amet condimentum sit amet, tristique et leo. Sed tincidunt justo a porttitor tristique. Nulla eu metus tincidunt, ornare magna ullamcorper, semper lacus. Quisque vitae porttitor odio, id tincidunt tellus. Fusce a suscipit eros. Proin sit amet risus fermentum, lobortis quam sed, consequat velit. Quisque sit amet ultricies lorem. Phasellus scelerisque ipsum eget ipsum posuere suscipit. Proin id molestie mauris, a venenatis ipsum. Quisque efficitur, nibh a dapibus mollis, metus tortor fermentum ante, non pellentesque mi magna non leo. Integer quis sem hendrerit, euismod dolor id, dapibus nulla. Maecenas non ultrices lorem. Pellentesque lobortis, diam eget feugiat lacinia, ante augue ullamcorper tortor, vel ornare sapien lacus pharetra quam.

Just a simple post

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed venenatis dignissim ultrices. Suspendisse ut sollicitudin nisi. Fusce efficitur nec nunc nec bibendum. Praesent laoreet tortor quis velit facilisis faucibus. Maecenas sollicitudin lectus diam, non vehicula arcu ullamcorper ac. In pharetra, est vitae interdum tincidunt, urna ligula rutrum tellus, sit amet pharetra purus magna eu enim. Sed iaculis imperdiet nisi, et pulvinar mauris gravida maximus. Phasellus vitae lorem at sem mattis volutpat. In eget dictum dui. Quisque nec sapien at massa mattis semper. Ut ac malesuada turpis. Fusce eu nulla vehicula, tincidunt dui ultrices, fermentum felis. Aliquam lectus nisi, feugiat ut aliquet sed, posuere sed libero.

Pellentesque consectetur massa nec nulla fermentum, at tincidunt elit volutpat. Duis vulputate placerat tortor, sit amet eleifend mauris tincidunt sit amet. Aliquam a maximus ligula. Phasellus nec sapien sed tellus tempor eleifend id a erat. Donec convallis bibendum posuere. Quisque mollis imperdiet malesuada. Suspendisse eget dictum massa.

Phasellus ac posuere nibh, in finibus nulla. In diam arcu, luctus sit amet condimentum sit amet, tristique et leo. Sed tincidunt justo a porttitor tristique. Nulla eu metus tincidunt, ornare magna ullamcorper, semper lacus. Quisque vitae porttitor odio, id tincidunt tellus. Fusce a suscipit eros. Proin sit amet risus fermentum, lobortis quam sed, consequat velit. Quisque sit amet ultricies lorem. Phasellus scelerisque ipsum eget ipsum posuere suscipit. Proin id molestie mauris, a venenatis ipsum. Quisque efficitur, nibh a dapibus mollis, metus tortor fermentum ante, non pellentesque mi magna non leo. Integer quis sem hendrerit, euismod dolor id, dapibus nulla. Maecenas non ultrices lorem. Pellentesque lobortis, diam eget feugiat lacinia, ante augue ullamcorper tortor, vel ornare sapien lacus pharetra quam.