In principle, real estate funds work like conventional investment funds. They pool the capital of various investors in order to make joint investments.

In a real estate fund, the capital of numerous investors is jointly invested in real estate, whereby at least 51% of the investment amount must be invested directly in real estate. This allows investors to invest indirectly and with a relatively small financial investment in the real estate market without having to pay for an entire apartment, for example. Profits are generated through rental income and increases in the value of the properties. Real estate funds are also characterized by broad diversification, which can include residential, commercial and industrial properties.

A basic distinction is made between open-end and closed-end real estate funds. Open-ended real estate funds demonstrate a high level of liquidity, which is why they allow investors to make investments or sell units at any time. Closed-end real estate funds only allow purchases with fixed terms, and the number of units is limited, as often only a few selected properties are included in the project.