Money Market Funds
Definition and meaning of Money Market Funds in real estate.
Money market funds are a type of mutual fund that invests in high-quality, short-term debt instruments, such as government securities and certificates of deposit.
In more detail
These funds are managed by investment firms and aim to maintain a stable net asset value of one dollar per share. While they are considered low-risk investment vehicles, they are not government-insured like bank accounts. Investors, including real estate developers and buyers, use them to park cash temporarily while waiting for investment opportunities.
Because they offer high liquidity, they are a common tool for holding large sums of capital before a property purchase or development project begins.
Key facts
| Category | Real Estate Investing |
|---|---|
| Sponsor | Mutual fund companies and investment firms |
| Target Share Price | Typically maintained at one dollar per share |
| Insurance Status | Not insured by the FDIC or federal government |
An investor sells a rental property and parks the cash proceeds in a money market fund to earn daily interest while they search for a new property to purchase.
Frequently asked questions
Are money market funds the same as money market accounts?
No, money market accounts are bank deposit accounts insured by the FDIC, whereas money market funds are investment products managed by mutual fund companies.
Can you lose money in a money market fund?
Although rare, it is possible to lose money in a money market fund if the underlying short-term investments default, causing the fund's share price to drop below one dollar.