Private real estate investing has become increasingly popular as investors look for alternative investments outside the stock market. In 2018, private real estate investment in the United States totalled $579 billion, up from $553 billion in 2017.
Private real estate investments can be made through various structures, including limited partnerships, joint ventures, and limited liability companies. Investors in private real estate may be individuals, pension funds, insurance companies, or other institutions. Private real estate funds expose investors to a diversified portfolio of properties and offer potential tax benefits, although there are also some risks to consider.
Here's all the information you need to know about private real estate investments.
Table of Contents
In the United States, a private real estate investment is an investment in real property held by an individual or group rather than a government or financial institution. Many people have heard of investing in the stock market or real estate properties, but private equity real estate investing combines elements of both.
Instead of purchasing individual properties, a private equity real estate investor typically invests in a private equity fund that acquires and manages various commercial properties such as office buildings, shopping centers, and hotels.
These funds often make money through rental income and increasing the value of their properties through renovations and the improved economic conditions of the surrounding area. Unlike publicly-traded REITs, these funds are not available on the stock market and must be directly approached by an interested investor.
Typically, only high-net-worth individuals or institutions have the financial resources to invest in private equity real estate, but these assets can be a profitable way to diversify a portfolio and generate steady returns over time.
When it comes to investing in real estate, various options are available. Two popular choices are real estate investment trusts (REITs) and real estate funds. Both offer the opportunity to diversify and invest in properties without buying and managing them yourself.
However, there are some critical differences between the two. REITs are publicly traded on the stock market, while real estate funds are typically private, with a fixed number of shares offered to investors. REITs often own and operate multiple properties, whereas a real estate fund may focus on one specific property or project.
Additionally, REITs often have high liquidity due to their public nature, while real estate funds tend to have longer holding periods and limited liquidity. Choosing between a REIT and a real estate fund ultimately depends on an investor's individual goals and risk tolerance. It's essential to weigh the benefits and drawbacks of each before making a decision.
Investing in private equity real estate can offer significant returns, as these investments tend to appreciate in value and generate income through rental payments. By pooling funds together, firms can invest in high-quality properties due to the substantial pooled capital. Private real estate investment trusts are also highly diversified since firms can afford to invest in various types of properties.
However, these investments can be reasonably illiquid since they often involve long-term commitments and may require major renovations or significant property management. In addition, there are high barriers to entry as these types of investments typically require a large amount of capital.
As with any investment, it's essential to thoroughly research and weigh the potential risks and benefits before deciding. Overall, investing in private equity real estate can be profitable for the right investor who is prepared for the potential challenges.
Private real estate investing can offer potential tax benefits and diversification to your portfolio, but it's important to be informed about the risks involved and the different types of investments available. Researching and understanding the requirements, costs, and industry information will guide you in making informed investment decisions.
Saint Investment offers access to private real estate funds that have undergone expert evaluation and provide high returns with flexible options. This takes out the guesswork of identifying profitable properties and provides a safer investment opportunity. The company offers debt-secured investments in real estate properties, reducing the risk for investors. Get in touch today to learn more about this investment opportunity.
To assess whether investing in private real estate is good for you, examine the following factors:
Investment Goals: Private real estate investments provide the potential for bigger returns than standard investments such as stocks or bonds, but they also carry greater risks.
Consider your investing objectives and risk tolerance prior to making a choice.
Financial Stability: Private real estate ventures can be capital-intensive and may necessitate a substantial initial expenditure.
Ensure that you have sufficient liquidity and financial stability before investing in private real estate.
Real Estate Market Knowledge: Private real estate investments frequently need a comprehensive grasp of the local real estate market.
Before making an investment, you should consider your level of knowledge and willingness to learn about the real estate market.
Time Management: Private real estate investments can need a substantial amount of time for management and oversight.
Consider if you have the time and money to invest in private real estate.
Diversification: private real estate investments can be a helpful complement to a diversified investment portfolio, but they should not comprise a significant component of your portfolio.
Consider how private real estate fits into your investment strategy as a whole.
Before making investing decisions, it is essential to consult a financial advisor or specialist.
The following procedures are required when investing in privately owned real estate:
Do your homework and learn about the local real estate market so you can spot promising investment opportunities.
Look at the potential for a rise in rental income and the value of the property.
Determine your investing goals and assess your risk tolerance before settling on a specific private real estate investment strategy.
Gather Your Experts: Enlist the services of a realtor, lawyer, accountant, and financial advisor to help you through the process.
Determine how much money you need, then investigate mortgages, equity investments, and partnerships to acquire it.
Perform your due diligence and carefully examine any potential investment properties through in-depth site visits, market research, and budgetary projections.
The next step is to make an offer on the property after you have done your research.
Win the Customer Over: Finalize the deal by taking care of any outstanding paperwork and arranging any required funding.
Maintenance and a steady stream of income may be ensured by employing a professional property manager, but failing to do so could lead to legal trouble.
Keep an eye on how your investments are doing to see if any changes need to be made to help you reach your financial objectives.
Consider the following variables while assessing possible private real estate investments:
Location: Seek for homes in desirable, expanding locations with high rental demand.
Consider considerations like closeness to public transit, schools, and job hubs.
Condition of the property: Thoroughly inspect the property to determine its condition, including any necessary repairs or modifications.
Consider these repair costs while appraising the property.
Assess the rental revenue potential of the property and compare it to alternative investment options.
Consider local rental prices, the size of the property, and the demand for rental units in the region.
Consider the likelihood that the property's worth will appreciate over time.
Conduct research on the local real estate market and hunt for indicators of expansion and rising property values.
Consider the competition for comparable properties in the region, including the amount of comparable properties available for rent or sale, and how the property you are reviewing compares in terms of rental income and appreciation potential.
Alternatives for finance: Evaluate the available financing options for the property, including mortgage rates, terms, and the needed down payment.
Consider the tax consequences of investing in the property, including property taxes, depreciation, and any prospective tax advantages.
A master in Investment, Marketing, and Capital Raising.
Nic has honed his focus on the Real Estate and debt markets with Saint Investment Group and pursues large-scale Distressed Asset purchases with his partners and syndications.
