If I buy a house, I buy a house.
If I form a company to buy houses and shopping centres, the company owns the houses and shopping centres. But I don’t, I just own the company. I’m still “invested in real estate”, even though I don’t actually own any. I just own a company.
Maybe my cousin Vinny wants to buy some real estate – he’s just started his law career and has earned $1000 from his first case. Sadly, there are no properties available for $1000. But he can buy a share in my company. Now he’s invested in real estate, even though all he owns is a share in a company.
Maybe my real estate company becomes so successful that I decide to list it on the stock exchange. Now hundreds or thousands of people can buy shares in my real estate company. They might think they’re investing in shares, but if the only stock they bought was mine, they’re really invested in real estate.
Maybe lots of other companies also do the same thing – invest in real estate, and list themselves on the stock exchange.
Now, maybe a fund manager decides “rather than investing in individual real estate companies, let’s set up a managed fund to invest in all of them”. Then, Vinny can go to this fund manager “ABC Real EstateTrust”, and invest $1000. That $1000 is then pooled with a million other small investors, and ABC Real Estate Trust buys shares in real estate companies. Vinny is still invested in real estate, even though he doesn’t own any real estate. He doesn’t even own any shares in companies that own real estate. Instead, he has a share in “ABC real Estate Trust” (which also doesn’t own real estate, they own shares in companies that own real estate).
Finally, ABC Real Estate Trust decides to launch an exchange-traded fund. Now you don’t have to open an account with them directly, you can just buy shares in the ETF. They you will be invested in real estate because you own shares in an ETF that is backed by a managed fund that owns shares in dozens of companies that each individually own lots of real estate.
The tangible assets are there, but they are hidden behind lots of paperwork.
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