Understanding Private Real Estate Fund Investing 

In today’s marketing environment where it has become increasingly difficult to enjoy a high yield in both stock and bond markets, many are looking into alternative investment routes.  Many of these alternative investment options aim to increase yields and offer unique and potentially untapped opportunities for keen investors.   

It is always worth remembering that any new investment poses a new set of challenges and potential issues for investors.  While there are a number of investment options worth pursuing, one of the most popular options is private real estate investments. 

Here, we will consider both the benefits and challenges of investing in private real estate offerings. 

What is Private Real Estate Investing? 

Before we jump into your new investment opportunities, it’s important to highlight the two most common methods of investing in real estate – direct ownership of real estate and real estate investment trusts (REITs).  Here we will be focusing specifically on private real estate funds.  

This method of investment has enjoyed consistent high yields and has been raising money at consistent levels.  There are also a number of investment profiles that are continually utilised by investors. These include your ‘core’ profiles, which are safe, trophy properties and ‘opportunistic’ profiles that are a great option for investors with little to n cash flows. 

Investing in Private Real Estate Fund Offerings 

Most private investors looking to dip their toes in the real estate investment market should consider investing in assets acquired and managed by a third-party.  Market leaders like Goodwin offer advisement for funds and their sponsors and managers with regards to formation and structuring in all real estate verticals. 

This third-party is typically known as a ‘sponsor.’  This sponsor is usually in the form of a fund for an individual investment, or a hybrid structure that is able to combine existing assets with future acquisition options. These types of investments offer a range of advantages including: 

  • An investor benefits from the experience of the sponsor who typically has established operations led by a team of professionals. 
  • Investment costs in private real estate funds are usually up front and will be outlined in a contract.  This contract will include the terms of any carried interest and management fees. 
  • The investment you choose to make can be done in a variety of sizes and asset types. This makes it a good option for smaller investors. 
  • Depending on the size of investment, the investor may be given the opportunity to enact meaningful decisions. 

Return on Cost (ROC) is a Great Starting Point  

A great starting point when it comes to private real estate investment is by asking your sponsor to outline a pro-forma financial forecast.  Once you have these financials, a detailed assessment can be carried out to deduce Return on Cost (ROC).  

An easy way to think about ROC is as the expected yield of your property investment at the moment it becomes stable. 

One of the main reasons ROC is highly useful is that it provides you with a clear baseline for investors to ask questions. 

When it comes to private real estate funds, it’s vital that any potential investors have the full picture of any investment opportunity.

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