by Diogo Canteras - Founding Partner, HotelInvest

In recent years, Real Estate Investment Funds (REIFs) have gained increasing prominence in the Brazilian market, attracting investors seeking passive income and portfolio diversification. The number of REIF shareholders in Brazil has grown exponentially, from around 400,000 in 2018 to more than 2 million in 2023. 

This increase reflects the growing interest and confidence of investors in this type of asset. One interesting segment within this universe is REIFs focused on the hotel sector. In this article, we will explore the main reasons for adding hotel assets to a real estate fund and why this alternative can be advantageous for both investors and hotel owners.

1. Risk Diversification

One of the main advantages of a Real Estate Investment Fund is its ability to diversify risks. Instead of relying on the performance of a single hotel, the fund can invest in several hotel assets in different locations and categories. This diversification model reduces the investor’s exposure to specific risks, such as seasonality or management issues in a single establishment. 

2. Tax Benefit

In Brazil, REIFs are exempt from income tax on dividends for individuals, making this type of investment even more attractive. Individual hotel owners, by allocating their assets into a real estate fund, can take advantage of this tax benefit, increasing the net profitability of their operations.

3. Professional Management

Another key reason to consider REIFs is the professional management offered by specialized administrators. Instead of dealing directly with hotel management, the investor can take a more passive approach, relying on the knowledge and experience of industry professionals. This allows for greater operational and strategic efficiency, maximizing the investment's return potential.

4. Increased Liquidity

Investing directly in real estate, especially hotels, can be a low-liquidity operation, meaning that selling the asset can be time-consuming or complicated. In contrast, REIFs listed on the stock exchange have much higher liquidity, allowing investors to buy and sell shares quickly and efficiently, adjusting their portfolio according to market needs and conditions.

5. Shared Investment Thesis                                                                          

Professional management generally provides a clear and well-defined investment thesis that guides strategic decisions. In the case of hotels, this might mean identifying which hotels are worth keeping in the portfolio and which would be better sold. Additionally, REIFs have greater negotiation power with hotel chains and can make management adjustments to optimize the value of assets and their profitability.

Conclusion: An Alternative Worth Considering

Given these advantages, individual hotel asset owners should, whenever feasible, consider the possibility of allocating their properties into a Real Estate Investment Fund. Risk diversification, tax benefits, professional management, higher liquidity, and a consistent investment thesis are solid arguments for this decision. For investors, hotel REIFs offer an opportunity to participate in a dynamic and profitable sector without the challenges and risks of direct ownership. It is worth exploring hotel REIF options for portfolio diversification.