Private fund investing vs Flip/BRRRR/etc

[JM Edward]

Hello! Long time lurker, first post...

I'd like to hear the perspective of people on investing in private real estate funds: I'm looking at diversified funds (each has its own strategy and type of investments), the better of which offer returns around 12%.

For someone with no experience evaluating a deal or executing a rehab (can learn, yes, but I expect mistakes), as well as having a full life with plenty of existing commitments, interests and projects that already fill my calendar, I'm wondering if locking my money into a 2-5 year commitment at 12% (assuming it even stays that high) is more sane than adding an intensive months-long flip project to my life. If your opinion changes based on the need for loans, in my case, I'd probably do my first flip all cash to reduce holding costs and allowing more time for the learning process.

I see very enticing rates of returns on projects people talk about here (at least the successful ones), double what the best fund can offer and only in a few months. That is a strong argument for giving it a go, but that's got many more risks than a fund that's somewhat diversified (and I can diversify more by buying different funds).

Does anyone here invest in such funds? What are the pros and cons and how do you personally compare them to hands-on investing?

[Chris Seveney]

Quote from @JM Edward:

Hello! Long time lurker, first post...

I'd like to hear the perspective of people on investing in private real estate funds: I'm looking at diversified funds (each has its own strategy and type of investments), the better of which offer returns around 12%.

For someone with no experience evaluating a deal or executing a rehab (can learn, yes, but I expect mistakes), as well as having a full life with plenty of existing commitments, interests and projects that already fill my calendar, I'm wondering if locking my money into a 2-5 year commitment at 12% (assuming it even stays that high) is more sane than adding an intensive months-long flip project to my life. If your opinion changes based on the need for loans, in my case, I'd probably do my first flip all cash to reduce holding costs and allowing more time for the learning process.

I see very enticing rates of returns on projects people talk about here (at least the successful ones), double what the best fund can offer and only in a few months. That is a strong argument for giving it a go, but that's got many more risks than a fund that's somewhat diversified (and I can diversify more by buying different funds).

Does anyone here invest in such funds? What are the pros and cons and how do you personally compare them to hands-on investing?

 I invest in funds as well as manage one. Here is what I can tell you, it all boils down to the sponsor. There is a whole category here on BP for syndications and passive real estaet as well as passive pockets. I recommend checking it out, and I always recommend you have an attorney review the documents you have from the sponsor.

12% is not uncommon, you typically see 8-12% and some other deals are higher but typically the higher the return the higher the risk. What you also need to look out for is returns in the same asset class that are out of line - for example I am a debt fund and we offer 8-11%+ as do most debt funds - when you see one offering 15% or more - something is not adding up and you should be asking "why are they higher, are they that much better?  

Also remember the old adage, if its too good to be true it probably is.

Lastly the pros are you are passive vs.active which is also may be a con as you give up control - but no one ever complains about a good sponsor and every complains about a bad one.