The risks of FIIs

FIIs offer attractive income, but they are genuine investments with real risks. Knowing them in advance keeps you from being surprised.

Market (price) risk

Cota prices float on the exchange every day and can fall — sometimes sharply — regardless of how the underlying buildings are doing. If you must sell during a downturn, you can realize a loss even on a fund that is paying well.

Interest-rate risk

FIIs compete with fixed income. When Brazil's benchmark rate (Selic) rises, safe government bonds pay more, and investors often demand a higher yield from FIIs, pushing cota prices down. Falling rates tend to do the opposite.

Vacancy and tenant risk

For brick funds, an empty building or a departing anchor tenant cuts rent and therefore distributions. Concentration in one tenant or one property magnifies this.

Credit risk

For paper funds, a borrower behind a CRI can default, reducing income and the fund's value.

Liquidity risk

A thinly traded fund can be hard to sell at a fair price when you need to exit.

Management risk

A weak or self-interested manager can overpay for assets, take on bad credit, or dilute cota-holders with poorly priced new offerings.

The takeaway

None of these should scare you away — they are the normal trade-offs of earning real-estate income. They are managed, not eliminated, through diversification, reading the reports, and not overpaying for yield.