Public REIT Vs. Private Fund: Pros and Cons

Commercial real estate offers a variety of investment opportunities for investors looking for passive income and exposure to the sector. Private equity real estate firms or real estate Investment Trusts (REITs) are among the options they have to invest their capital in.

The two types of firms often make the same investments in similar assets, leading to confusion between them. As alternatives to traditional real estate investments, these two offer investors a variety of options. As well as being accessible to those with limited resources, such as capital, deal flow, and expertise—both these approaches are appealing to those with limited resources.

In addition, passive investment strategies without management offer valuable options for those seeking low-risk passive investments. An individual investor should be familiar with the differences between private equity and real estate investment trusts before considering either.

What are REITs?

Investing in real estate is a way to generate income. Real estate investment trusts own, operate, or finance income-producing properties. The underlying real estate assets generate income and profits that investors can earn through REIT shares. These are formed as corporate entities, so investors can invest in them.

Multiple investors contribute to REITs’ capital pool to finance operations, future acquisitions, and real estate developments. You can make money from real estate investments without buying or managing anything yourself with this system. 

Why Invest in REITs Now?

A REIT may be the right investment instrument for budding real estate investors looking for a regular stream of dividend income. Cost increases for raw materials and wages continue to pressure many businesses and their stock prices, especially those where prices cannot be passed on to consumers.

Meanwhile, REITs can take advantage of inflationary environments in some important ways. A rise in prices tends to increase property values, while a rise in cash flows is also generally beneficial. It can be difficult to correlate stocks and bonds with the real estate market, which is why REITs give investors exposure to the real estate market. Stock exchange listings and easy trading make REIT investing a convenient investment option.

What is Private Equity Real Estate?

Funds created to raise equity for real estate investments are known as real estate equity funds. Through a pooled vehicle, investors can acquire, finance, and own a property or multiple properties.

Investors with high net worth or accredited investors are able to purchase those securities. However, these securities aren’t available to the general public.

Private equity firms have more freedom to invest in a variety of real estate asset classes, including income-producing properties since they’re not subject to the same regulations as REITs. 

Why Should You Invest in Private Equity?

High-net-worth individuals with a long-term time horizon can invest in private funds while taking a passive approach to real estate investment. As well as offering investors in-house investment expertise and reducing the hassles of managing investments, private equity firms act as consultants.

Since this lack of flexibility can result in increased risk, investors are willing to pay a higher rate of return in exchange for the risk of locking up their funds for longer periods. Markets with public, highly liquid shares do not typically have these excess returns, which could result in a better return on investment in the long run.

What are the Pros and Cons of REITs and Private Funds?

Due to their public nature, REITs are often more liquid than other types of investments. A private real estate investment typically requires a much higher minimum investment and is normally available only to accredited investors.

Since there are fewer investors per property, REITs typically require lower investment thresholds, whereas private real estate investments typically require higher minimums. 

In order to maintain a high correlation to the stock market, REITs are valued every day like stocks. The correlation between private real estate and public stock markets is typically lower. The market for private real estate usually does not fluctuate as much as the public stock market.

REITs Enhance Portfolio Diversification

Diversifying your investment portfolio with REITs will be easy once you invest in them. In addition to enjoying high returns, you will be spared the risks and volatility of stocks when you invest in real estate instead of only bonds and stocks. It also helps to protect your investment from market fluctuations because real estate is highly correlated with stocks.

Private Equity is More Effective and Efficient

There’s no need for an army of employees and brokers to manage private funds since they are big enough to take advantage of real estate investment opportunities. Investors get more focus on generating returns with less overhead.

REITs Have Good Return Potential

Investments in REITs offer a good return potential, which is one of the best things about them. Their underlying assets’ value will rise in value, especially if the value of the company’s stock increases.

In the long run, the value of real estate tends to increase, and REITs can create additional value by utilizing some strategies. 

Private Funds have Lower Correlations to Traditional Asset Classes

Public REITs are more highly correlated to equities than private real estate funds due to the fact that they are traded on the capital markets.

Therefore, public REITs can be harmed by stock-market downturns because they typically experience higher volatility.

REITs Have Advantages in Inflationary Environments

The increase in property values is generally accompanied by an increase in cash flow streams as well. A hotel, a self-storage facility, or an apartment with short-term leases are examples of a property that is regularly reset.

Inflation protection can be built directly into the lease, making it an excellent investment.

Private Equity Funds Have Potential for Tax Advantages

Interest from bonds and dividends from stocks can be taxed at lower rates than income from real estate investments. Additionally, investors may be able to lower their taxable income by deducting depreciation.

Let Saint Investment Group Help You Generate Income

Learning about each option and consulting with a reliable company will help you select the one that is best suited to your individual requirements and goals. You can learn a lot about real estate investing and how to invest in REITs online from the resources on our website.The continuous improvement of our process helps us provide the best service to our investors. It’s easy to start earning money right away with the right investment. To invest in REITs now, contact us at 949-881-7128 at Saint Investment Group today!