Nowadays, investing in physical real estate is straightforward and accessible for all budgets. As an investor, you can choose a brick fund to integrate into your portfolio. Brick funds are real estate funds comprised of physical properties, sought after by investors who wish to include them in their portfolio without directly purchasing the properties.

This type of fund eliminates much of the bureaucracy associated with real estate acquisition and offers an investment opportunity comparable to the traditional method. However, while brick funds are easily accessible, selecting the right one requires careful consideration. It’s essential to understand what aspects to evaluate when choosing the most suitable fund for each investor.

In this post, we’ll explore how brick funds work and what to analyze when deciding which one to invest in. Read on!

What Is a Brick Fund and How Does It Work?

A brick fund allows you to invest in physical real estate. While it is composed of real estate assets and tends to be less volatile, this fund is traded as a variable-income investment. For this reason, it’s an appealing financial product for investors with some experience in the segment who are looking for regular income.

This type of fund enables investment in a portfolio of physical properties through the purchase of shares. Strategies are developed to achieve target returns, as outlined in the fund’s regulations, based on its objectives and risk profile.

Funds use the resources collected from initial share purchases to build or acquire real estate assets in specific sectors, such as logistics warehouses, or allocate the resources to other segments within the real estate market. The primary goal is to achieve planned returns through monthly rental income or by selling properties after they appreciate in value.

In a real estate fund, the investor is not the direct owner of the properties acquired. Instead, the investor “lends” capital to the fund to implement its strategies, freeing them from the responsibilities of managing, controlling, or collecting rent.

Brick funds involve both a manager and an administrator who are responsible for creating strategies, custody of the shares, and all related actions for the fund.

Types of Brick Funds

There are several types of brick funds, including:

●      Hospitals;

●      Shopping centers;

●      Corporate offices;

●      Logistics warehouses;

●      Supermarkets;

●      Educational institutions;

●      Bank branches.

Each sector has unique characteristics that will directly impact the return on your investments, so it’s essential to analyze the specifics of each type of property.

What to Consider When Choosing a Brick Fund?

1. Volatility

Compared to stock investments, brick funds tend to exhibit lower volatility. This characteristic makes them more appealing to beginner or conservative investors.

2. Profitability

Brick fund profitability comes from rental income generated by the properties in the portfolio, which is periodically distributed among investors. If a property is sold, the appreciation value is also distributed.

3. Liquidity

Diversified funds, such as brick funds, often have higher liquidity on the stock exchange. You can opt for funds listed in the IFIX (Real Estate Investment Fund Index), which includes the most traded funds. However, funds outside this index usually have lower liquidity, making it riskier to enter or exit these investments.

4. Vacancy Rate

It’s crucial to check the average vacancy rate of the fund, particularly for income-focused funds. This rate reflects the average time properties remain unoccupied, which impacts returns. A high vacancy rate in a brick fund could signal increased risks, but it may also present a buying opportunity if the shares are discounted relative to the market value of the properties.

5. Profile and Objectives

When investing in real estate, choose funds that align with your comfort level after conducting a detailed analysis of their characteristics, investment thesis, and risks. Assess your tolerance for risk, market fluctuations, and potential losses.

Types of investors include:

●      Aggressive: High risk tolerance.

●      Moderate: Tolerates some level of risk.

●      Conservative: Low risk tolerance.

Since real estate investments fall under variable income, they are less suited for conservative investors. However, they can still be a valuable option for diversifying a conservative portfolio.

Performance

Before purchasing shares, it’s essential to analyze the fund’s performance history. While past performance doesn’t guarantee future returns, it provides insight into the fund’s behavior and serves as a strong indicator of its potential. This analysis helps align expectations and guide decision-making. Additionally, when evaluating performance, always compare it to a benchmark.