Tyler Tysdal confirms that as house prices continue to soar in certain areas then people also see them as very worthwhile investments. Fund managers hold large amounts of real estate in their portfolios and those of their clients. The profit made from real estate funds has been much higher than the national average for quite some time.
Private Equity real estate is a pool or collection of investments in various property markets. It involves buying the properties and owning them either directly or indirectly via a pooled investment vehicle. They became popular in the early 1990s and have remained so since.
Private equity investing usually requires a spare quarter of a million dollars, thus making it out of most people’s price range. Also, as the investment is in a pool of houses it can take a significantly long time to get hold of your money should you need it. There tend to be locked up periods of a dozen or more years as, if you think about it, your cash can not be released until a property is sold and you are not the sole owner of those properties. Again, distribution of the cash can be very slow due to the payment being made from cash flow if possible, if the pool of investors or the owners do not want a property to be sold.
Why then are they sought after, well this is because they offer a very good potential for increase of income, around and about the 7 percent mark on average which is exceptionally good in the current investment market. They are therefore good to invest if you want to protect and increase the value of your capital and you have no time requirement to get it back, in that case perhaps for inheritance planning purposes.
Don’t imagine that it doesn’t come without risk though if the total fund underperforms investors can lose their entire investment. There are usually two ways that you can pay. For an individual investor then the total value is usually handed over at the time of signing the paperwork. Funds for banking or other financial institutions will usually require an upfront value and then capital will be drawn down or taken from them as other suitable investments are made. There will obviously be a signed detailed plan confirming all that is expected from both parties.
Private equity funds only require a cash payment from you. They allow you to invest in different real estate properties and areas which will spread the risk. The idea being that if one property value decreases then others will increase to bolster the loss. A private equity fund is a contract between an investor and the fund itself. The fund will not share information about valuations or yields returned by their private equity investments as they will then lose their edge if people or competitors find out about the current success.
An alternative to this is investing directly in property which allows you to have the freedom of choice but it makes more work for you. You must decide which property you think will increase in value. You must do your own paperwork.