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BlogArrowReal Estate Investing BasicsArrowUnlock the Potential of Investing in Private Real Estate
Real Estate Investing Basics

Unlock the Potential of Investing in Private Real Estate

Max Sharkansky
Expertise: Real Estate Deal Analysis & Advice, Real Estate Investing Basics
17 Articles Written
open door-unlock

Real estate has been gaining ground as a comparatively safe alternative investment category that serves as a hedge against inflation with the potential for extremely attractive risk-adjusted returns.

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As investors look to diversify their portfolios, interest in real estate is growing. Thus, investors and advisors alike are expanding their knowledge and digging deeper into real estate options.

One method of investing in real estate is through public real estate investment trusts (REITs), real estate-owning companies that trade shares on the stock market. That said, there is another category on which many investors are seeking advice: private real estate.

What Is Private Real Estate?

investor-real estate

Private real estate refers to investments that are not open to the general public in the form of publicly traded stocks or shares. It can involve outright purchases of real property, pooled investment in that property or investment in funds that buy property.

Private real estate investments can refer to both equity (direct ownership) and debt (mortgages) in real estate properties. Private equity funds allow investors to participate in real estate investing without the responsibilities of sole ownership, while private debt funds help finance the purchase of real estate by other entities.

Related: Private Money Lenders: Who They Are & 3 Feasible Ways to Find Them

Investors placed $39 billion in private equity funds during the first quarter of 2019—$8 billion more than in the previous quarter—as prices and competition for these assets continues to rise, indicating an increased level of confidence and trust in the sector.

Distinguishing Private Real Estate Investment from Other Types

Private investors generally have a higher level of property ownership than public or institutional investors do, which brings with it the potential for greater return on investment. With that higher level of ownership comes more control over the investment property, how it is managed and improved and how it is marketed.

The illiquid nature of these transactions can limit cash flow, but essentially investors view potentially receiving higher returns on private real estate transactions as an “illiquidity premium.”

Qualifying for Certain Investments

bank-qualify

It is important to note that certain forms of private real estate investment (including those not registered with the Securities and Exchange Commission that do not qualify for a Regulation A exemption) are only open to accredited investors.

An accredited investor has a net worth of at least $1 million (excluding their residence) or an annual salary of $200,000 (or $300,000 if filing jointly) for the prior two years.

The SEC has been exploring the idea of expanding the definition of an accredited investor to allow more people to qualify for private investments. Many investment professionals applaud this idea, as long as there are additional qualifying standards such as a demonstrated level of education about the risks.

Related: 6 Ways to Diversify Your Real Estate Investment Portfolio

Private real estate offers investors the opportunity for wealth preservation and portfolio growth in a way that other types of investment do not. Along with the capital advantages, investors gain knowledge and insight into the world of commercial real estate and how it reflects the broader economy.

hard-money-lenders

Have you invested in private real estate before, and what was the result?

Share with a comment below!

By Max Sharkansky
Since founding Trion Properties, a private equity investment company that specializes primarily in value-add multifamily real estate investments and ground-up developments, Max Sharkansky has led t...
Read more
Since founding Trion Properties, a private equity investment company that specializes primarily in value-add multifamily real estate investments and ground-up developments, Max Sharkansky has led the acquisition, renovation, and disposition of over $300 million in mismanaged and distressed assets. Max, along with partner Mitch Paskover, formed Trion in 2006 and successfully formulated a strategy of acquiring "diamond-in-the-rough" multifamily properties and creating value through renovations, creative rebrands, hands-on management, and the improvement of operating efficiencies. Max’s expertise of the marketplace has been instrumental in the firm’s success. Find out more about investing with Trion at Trion-Properties.com.
Read Less
2 Replies
    Gary L Smith
    Replied over 1 year ago
    The key to successful private equity real estate investing, is finding a niche you’re knowledgeable about and a business model that fits your investment philosophy. Personally I prefer swan deals, Swan meaning Sleep Well At Night. Certain sectors of commercial real real estate offer true passive income with absolutely zero landlord responsibilities.
    Nestor C. Real Estate Agent from Miami, FL
    Replied about 1 year ago
    I found very interesting your comments. You have more a Moderate profile Investor like me than the ones that were more Aggresive! Lol

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