While Real Estate Mutual Funds Have Done Well, Real Estate is Still the Better Investment:- If there was any proof needed for the superiority of real estate as an investment, it was provided in the first quarter of 2013 by the performance of mutual funds from that sector.

Real estate mutual funds

For the first quarter of 2013, real estate mutual funds jumped by 6.6%, according to an article in USA Today by John Waggoner. Over the last five years, the rise has been more than one-third at 34%, reported Waggoner’s piece, “Stock Funds Soar in First Quarter.”  There has been a full recovery from The Great Recession as real estate mutual funds are now trading an average of 13% above the 2007 peak, Waggoner also detailed.  As well as these mutual funds have performed, however, direct investing or financing the purchase of those assets is still a much better way to profit from real estate.

There is far more flexibility and precision from directly investing in real estate or providing the mortgage for the buying of a property.  Real estate mutual funds focus on certain types of real estate.  That limits the range of properties that an owner can hold.  This can be very dangerous if there is a downturn in one sector as diversification is lacking.  A decline such as this in the limited type of property owned has caused the collapse of many real state mutual funds.

Real estate mutual funds also have greater administrative costs.  Management extracts a heavy toll from the cash flow.  If an owner takes care of their own real estate holdings, there are no management costs.  That is a tremendous advantage and savings over real estate mutual funds.

Another huge advantage comes from tax deductions.  Actively managed real estate still has far better tax advantages than a real estate mutual fund.  There is a wide range of expenses that can be written off when owning and managing investment properties.

Real estate assets in the form of private mortgages are just as appealing as the properties.  According to Jerry Cohen, President of EquityBuild, a premier private mortgage investment firm, “There are two methods for getting started in private mortgages: Mortgage Pools and Direct Lending.  Mortgage pools are like the mutual funds of private mortgages. Each investor's money is pooled with the other investors participating in the pool and the money is used for private lending.

Cohen, who was just awarded the prestigious “Moving America Forward” honor for the success of EquityBuild and EquityBuild Finance, its financial arm, furthered that, “Direct lending is typically reserved for seasoned real estate professionals due to the level of expertise that is needed to identify undervalued properties...”

Real estate is back: of that there is no doubt!  But real estate mutual funds are not the best way to profit from the rebound.  The gains are more with lower costs and higher tax savings with real estate properties and/or private mortgages.  As well as real estate mutual funds may do, the actual owning of an investment property or mortgage for one will always be the better investment.