Complicated? Popular wisdom lends a hand.

Arthur Vieira de Moraes* for 247 The world is watching the opportunities in the Brazilian real estate market. Real estate investment funds (REITs) are a great tool for those who want to invest in the area without having to buy a property. But, like any investment, it also requires caution. See how the popular wisdom of eight proverbs can help you evaluate your choices before investing your money in REIT shares.

Those who don't know where they're going are always lost.

Before investing, make sure the fund's investment objective aligns with yours. For example, someone who wants to receive regular monthly rent should not invest in a fund whose objective is the construction and sale of residential properties. Looking for a fund that generates rental income? Check if the properties are located in areas where you would invest, who the tenants are, etc.

You can't do good business with a bad person.

Find out as much information as possible about the fund manager. Investing through REITs (Real Estate Investment Trusts) is indirect; the manager decides which properties to buy or sell, in which locations, the price to pay or receive for the properties, who to rent them to, the rental value, the rental guarantees, etc. They also decide which company will manage a shopping mall, where to invest the cash on hand, which real estate receivables to buy or sell, which REIT units to buy or sell—in short, the success of a fund depends mainly on the quality and honesty of the manager.

You can't judge a book by its cover.

The face value of a fund's share says nothing about its price. To know if a fund's price is too high, you need to check the P/BV (price-to-book value) ratio. Dividing the share price by the share's book value gives you a real idea of ​​how much you're paying for the fund relative to its net asset value. The closer the result of this division is to 1,00, the better.

For example, a fund has a net asset value of R$1.000 and its shares are traded at R$1.200 on the Stock Exchange.

P/VP = 1.200/1.000 = 1,20

Anyone buying shares at this price knows they are paying 20% ​​more than the fund's net worth. Those aiming to profit from the potential appreciation of the shares need to be aware of this.

Don't put all your eggs in one basket.

One of the great advantages of investing through REITs (Real Estate Investment Trusts) is the possibility of diversification. Therefore, to choose where to allocate your money, it is important to know the fund's portfolio and verify if it is well diversified, both in terms of properties and tenants. The more properties in different locations and the more different tenants, the more diversified the fund's assets.

The same applies to real estate receivables portfolios, funds of funds, etc. Diversification reduces risk. The chances of a fund that owns a single property and a single tenant incurring losses are much higher than those of a fund that owns, for example, ten properties leased to ten different companies.

Profit is vitamins, liquidity is oxygen.

Liquidity is another advantage of REITs (Real Estate Investment Trusts). It's much easier to sell shares than to sell a property. Furthermore, once the sale is complete, the money is credited within three days. However, not all funds have good liquidity. Therefore, check the fund's average daily trading volume before deciding to invest. The more liquidity, the more security. Don't underestimate the importance of prioritizing liquidity.

When the alms are too much, the saint becomes suspicious.

Real estate investment funds distribute cash income equally to all shareholders. Each investor receives their own return. By dividing the income received by the net value paid for the shares, each investor determines their return.

For example, a fund distributed R$0,70 per share. All shareholders received exactly the same amount: R$0,70 per share. Investor A paid R$100,00 for the shares and investor B paid R$115,00. Each will have a different return.

Investor A
0,70 / 100 = 0,70%

Investor B
0,70 / 115 = 0,61%

Investor A's return will be 0,70%, while investor B's will be 0,61%. Therefore, it's not the fund itself that provides good or bad returns. The purchase price of the REIT units is what will determine the return for each unit holder.

Note that higher or lower profitability will be a consequence of the market's perception of risk factors. If a fund's profitability is significantly above the market average, be certain that it offers more risk than others, and therefore investors are only willing to take these risks in exchange for higher profits.

If the fund has problems, the devaluation of the shares can be much greater than the initial profits with the highest returns. Furthermore, check the average returns for at least the last 12 months to identify if the distributions are uniform or seasonal, if there are non-recurring amounts (extra income), if there are no amortization payments on shares, etc.

Those who stand still are like lampposts.

Some funds have made a single share issuance and never increased their assets again. This doesn't mean they aren't good funds, but it's beneficial for them to make new issuances periodically. This way, the fund raises money for further investments and attracts more investors. Increasing the fund's assets also improves diversification and the liquidity of its shares on the stock exchange.

The ghost knows who it appears to.

Build a diversified portfolio, choosing at least three different funds. Of course, you can allocate resources to a riskier fund among them. High risk doesn't guarantee problems, only a higher probability. But if your portfolio consists only of riskier funds, the chances of encountering problems will be much greater.

Always talk to your investment advisor, read fund reports, stay informed about real estate market prospects, and invest consciously.

* Arthur Vieira de Moraes is an independent investment agent, a guiding member of the National Institute of Investors (INI), and the author of the blog Behind the scenes of the Stock Exchange

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