You can invest in real estate funds through a regular brokerage account, a crowdfunding platform, or a private fund manager, depending on how much you want to invest and whether you qualify as an accredited investor. The entry point ranges from as little as $10 on some platforms to $25,000 or more for private funds. Each route comes with different levels of liquidity, fees, and tax treatment, so understanding the landscape before you commit money matters.
Types of Real Estate Funds
Real estate funds come in several flavors, and the differences go well beyond branding. The type you choose determines how easily you can sell your investment, what returns look like, and how much paperwork you deal with at tax time.
Public REITs are the most accessible option. A real estate investment trust (REIT) owns, operates, or finances income-producing properties and trades on major stock exchanges just like a regular stock. You can buy shares through any brokerage account and sell them during market hours with no lockup period. REITs are required to distribute at least 90% of their taxable income to shareholders as dividends, which makes them popular with income-focused investors. You can also buy REIT mutual funds or REIT ETFs, which bundle dozens of REITs into a single holding for broader diversification.
Real estate mutual funds invest primarily in the securities of public real estate companies rather than owning properties directly. These funds trade at their net asset value once per day, at market close. They offer professional management and diversification across many property types but are slightly less liquid than individual REIT shares since you can only redeem at the end of the trading day.
Private real estate funds pool investor capital to buy properties directly. These are structured as limited partnerships or LLCs, managed by a professional sponsor, and typically available only to accredited investors (individuals with a net worth above $1 million excluding their primary residence, or annual income above $200,000). Minimum investments often start at $25,000 to $100,000 or higher. Your money is usually locked up for several years, but the trade-off is access to deal types and return profiles that public markets don’t offer.
Real estate crowdfunding funds sit somewhere in between. These are pooled vehicles offered through online platforms, some open to all investors and some restricted to accredited investors. They typically invest in a diversified portfolio of properties or real estate debt. Minimums vary widely, from $10 to $25,000 depending on the platform and offering.
Where to Buy Real Estate Fund Shares
For publicly traded REITs and REIT ETFs, any major brokerage account works. Search by ticker symbol, place your order, and you own shares within seconds. Most brokerages charge no commission on stock and ETF trades. REIT mutual funds are also available through brokerages, though some funds carry sales loads or minimum investment requirements set by the fund company.
Crowdfunding platforms open the door to less traditional real estate funds. Fundrise accepts non-accredited investors with a minimum of just $10 and charges around 1% in annual fees. RealtyMogul also accepts non-accredited investors but requires a $5,000 minimum, with management fees between 1% and 1.25%. EquityMultiple requires accredited investor status and a $5,000 minimum, with fees ranging from 0.5% to 1.5%. Each platform offers different fund structures, from diversified income funds to growth-oriented portfolios, so review what properties or strategies the fund targets before investing.
For private real estate funds, you typically invest through the fund sponsor’s website or through a financial advisor who has access to the offering. The process involves completing subscription documents, verifying your accredited investor status, and wiring your capital. These funds often have specific fundraising windows, so you may need to commit during a defined offering period.
Understanding the Fee Layers
Fees in real estate funds vary dramatically by structure, and private funds in particular stack multiple fee types that can eat into returns if you’re not paying attention.
Public REIT ETFs and mutual funds charge an expense ratio, usually between 0.08% and 0.60% per year for index-style funds, or up to 1% or more for actively managed funds. That fee is deducted from the fund’s assets automatically.
Private real estate funds and crowdfunding offerings carry a more complex fee structure. A typical private fund charges a one-time upfront fee of 1.5% to 3% to cover fund formation, legal costs, and marketing. On top of that, expect an annual management fee of 0.5% to 2% and an administrative fee under 0.5% per year. If the fund buys individual properties, there may also be acquisition fees of 1% to 2% per deal and disposition fees of 1% to 4% when properties are sold.
Then there’s the performance fee, often called a “promote” or carried interest. Most private funds use a waterfall structure: investors receive a preferred return first, typically 6% to 15% per year, before the fund manager takes a share of profits above that threshold. The most common split is 80/20, meaning investors keep 80% of profits above the preferred return and the manager keeps 20%. This split can range from 60/40 to 90/10 depending on the fund.
Before committing to any private fund, add up all the fee layers and model what your net return would look like under different scenarios. A fund advertising 15% gross returns might deliver significantly less after fees.
Tax Treatment of Distributions
How your real estate fund income gets taxed depends on the fund’s legal structure, and the paperwork differs accordingly.
Public REITs held in a taxable brokerage account send you a Form 1099-DIV each year. REIT dividends are generally taxed as ordinary income rather than at the lower qualified dividend rate, since REITs pass through rental income rather than corporate earnings. However, a portion of REIT distributions often qualifies for the 20% pass-through deduction under Section 199A, which effectively reduces the tax rate on that portion.
Private real estate funds structured as partnerships or LLCs issue a Schedule K-1 instead of a 1099. A K-1 reports your share of the fund’s income, losses, deductions, and credits, all of which flow through to your personal tax return. This pass-through structure means the fund itself doesn’t pay taxes; you pay tax on your allocated share of income whether or not you received a cash distribution that year. K-1s are notorious for arriving late, sometimes not until March or April, which can delay your tax filing. They can also be complex enough to require professional tax preparation.
One benefit of K-1 income from real estate funds is that depreciation deductions often offset a significant portion of the taxable income, meaning your tax bill may be lower than the cash you actually received. This is one of the main tax advantages of real estate investing, even through a fund structure.
Evaluating a Fund Before You Invest
Start with the fund’s investment strategy. Some real estate funds focus on core properties, meaning stabilized, income-producing buildings like apartment complexes or office towers in major markets. These tend to generate steady cash flow with lower risk. Others pursue value-add or opportunistic strategies, buying distressed or underdeveloped properties with the goal of renovating and selling at a profit. Higher potential returns come with higher risk and longer time horizons.
Look at the fund manager’s track record. How have their previous funds performed, net of all fees? What happened during downturns? A manager who delivered strong returns only during a booming market tells you less than one who navigated a downturn without catastrophic losses.
Check the fund’s leverage ratio, which tells you how much borrowed money the fund uses to amplify returns. Moderate leverage (40% to 60% of property value) is common in real estate, but funds using 75% or more leverage magnify both gains and losses. In an environment where interest rates remain elevated compared to pre-pandemic levels, high leverage increases the risk that borrowing costs consume a larger share of rental income.
Review the liquidity terms carefully. Public REITs let you sell anytime the market is open. Crowdfunding platforms may offer quarterly or annual redemption windows, sometimes with penalties for early withdrawal. Private funds typically lock your capital for five to ten years with no ability to sell before the fund liquidates its properties.
How Much to Allocate
Real estate funds work best as one component of a diversified portfolio rather than as a standalone bet. Many institutional investors allocate 5% to 20% of their portfolios to real estate. For individual investors, a similar range makes sense, adjusted for your other real estate exposure. If you already own a home, you have significant real estate exposure through that single asset, which is worth factoring in.
If you’re starting small, a publicly traded REIT ETF gives you instant diversification across hundreds of properties for whatever amount you want to invest. As your portfolio grows and you become comfortable with less liquid investments, you might layer in a crowdfunding fund or eventually a private fund to access different return profiles. Matching the fund’s lockup period to money you genuinely won’t need for that timeframe is the most practical way to avoid being forced into a bad exit.