Living off income from investments is the goal of many people. After all, it is a way to make the money invested generate enough income to pay expenses. It’s called passive income. And among the products that can be in the portfolio of those who want to live off income are real estate funds (FIIs). Given this, the question arises: how much to invest in real estate funds to live off income?
After all, having a passive income focused on FIIs can be quite interesting. “This is because, by law, real estate funds are required to distribute at least 95% of their results. Therefore, FIIs are a good vehicle for the strategy of living off income because they provide a relatively constant flow of return via dividends”, explains Rodrigo Rosário, CFA, head of strategic allocation and partner at VLGI Investimentos.
Without forgetting that real estate funds are exempt from Income Tax. “And this exists, because it is a title created in a country with a housing deficit like Brazil. So, you have this tax incentive of not paying tax within real estate funds for individuals in order to achieve good collections”, comments Danny Gampel, partner and head of credit at Cy Capital.
But before we present numbers on how much to invest in real estate funds to live off income, it is important to take into account the effect of inflation when thinking about passive income.
“In other words, the yield must be calculated as a value above inflation. If the investor does not consider this, when spending the financial returns, he will use part of the initial value (principal) and his purchasing power will decrease over time”, points out Bruno Mori, economist and founding partner of the consultancy Sarfin.
And passive income, of course, is achieved through a diversified portfolio of investments that generate regular income, such as stock dividends, bond interest, or real estate rentals. “In short, it’s about having financial freedom to enjoy life without depending on a traditional job”, comments Marlon Glaciano, financial planner and finance specialist.
So, to have a good amount entering your account every month, in addition to investing consciously, it is interesting to follow some guidelines. Check it out.
1. Diversification: build a diversified portfolio of REITs to reduce the specific risk of each investment.
2. Careful choice: do a detailed analysis of FIIs before investing. “To do this, take into account factors such as the quality of the properties in the portfolio, the solidity of the manager and historical profitability”, explains Glaciano.
Check out some real estate funds:
- Real estate development funds: the fund manager invests in the construction of properties that will then be resold with the expectation of making a profit;
- Income Funds: the fund buys properties, rents these properties and distributes the net income generated to shareholders. “Properties can basically be of three types: stores in shopping centers, corporate buildings and industrial warehouses”, says Bruno Mori;
- Real estate receivables funds: These are funds that invest shareholders’ money in fixed income securities. “These funds also usually pay monthly income to shareholders”, adds Mori.
3. Pay attention to income: prioritize real estate funds with a consistent history of income distribution. Furthermore, look for those that offer stable and attractive dividends.
4. Reinvestment: consider reinvesting the income received to progressively increase your position in FIIs and enhance income generation in the long term.
5. Follow-up: “Stay up to date on the performance of real estate funds and make adjustments to your portfolio as necessary, following changes in the real estate and economic market,” says Glaciano.
How much to invest in real estate funds to live off income
Of course, in addition to all these steps, many people think about the amount needed to invest in FIIs with a focus on passive income. And this will depend on your lifestyle and your expenses.
But the important thing is that the amount invested is enough so that the percentage of monthly spending is higher than inflation. So that there is no loss of purchasing power. “For example, if the investor has R$1 million, and inflation for the year is close to 5%, and the portfolio has yielded 12%, then 7% could be used for expenses”, says Rodrigo Rosário.
For Simone Carvalho Santos, CDO (Group Chief Distribution Officer) at NanoCapital, a strategy for finding an approximate number is to consider the amount you want to receive per month from your investments. And then, divide by the fund’s monthly return rate (dividend yield). The result will be the passive income you can earn.
“For example, if you want a monthly income of R$10,000, R$15,000 or R$25,000 and the FII’s monthly dividend yield is 0.5%, you would need to have invested R$2 million, R$ 3 million and R$5 million, respectively. But this is considering that the profitability of a good FII is 0.5% to 1% per month, on average. Obviously, this is a simplification and the actual value may vary depending on market conditions and the specific performance of the fund”, he calculates.
More projections for investing in FIIs and earning passive income
Finally, Bruno Mori brings a simulation that averaged a monthly FII yield of approximately 0.8% per month. “So, for the investor who wants to have R$10,000, R$15,000 or R$25,000 of passive income in FIIs, the amounts invested must be R$1.25 million, R$1.85 million and R$3.125 million approximately”, he states.
And remember, even with the focus on knowing how much to invest in real estate funds to live on income, it is important to review your portfolio from time to time. This way, it is possible to identify whether the profitability of investments is in line with your expectations.
