Beyond Equity Investments: What Is Private Real Estate Investment

This post was most recently updated on June 23rd, 2023

Have you been looking to invest your hard-earned money in something better and more rewarding? Something other than equity investments? Look no further for private real estate investment is the best.

Let us delve more into what private real estate investment is and its benefits.

What is Private Real Estate Investment?

Private real estate investment is the process of acquiring, investing in, or developing real estate. These get done in private markets rather than via publicly traded entities like REITs.

Why Should You Prefer Private Real Estate?

Private real estate is a significant sub-sector of the alternative investments market. It can get used to diversify your portfolio.

REITs are also one of the alternative investments available. They are publicly traded and have high liquidity. But, their volatility and correlation with the stock market are higher. Private real estate investment belongs to an alternative investment asset class. Their returns get determined by management talent plus microeconomic variables. Thus, making them far less associated with public markets. Thus, institutional investors can invest in such to diversify away from standard stocks and bonds.

Previously, private real estate investments were off-limits to individual investors. But, now, they can easily access them at significantly lower minimums via real estate crowdfunding.

Who Can Make Investments in Private Real Estate?

Private real estate investing is often restricted to accredited investors. But, now some managers use a Reg A+ vehicle. This lets non-accredited investors do private real estate investments with just $500.

Individuals who fulfill one of the following requirements get considered accredited investors:

• Individual net worth, or combined net worth with their spouse, with more than $1 million. But, this excludes the value of their principal property.
• Individual income of more than $200,000 in each of the previous two years. There is also an expectation of income to reach that level in the present year.
• A combined income with their spouse that exceeds $300,000 in each of the last two years. But, with the prospect of surpassing the same amount in the present year.
• Investment responsibility on behalf of a business or investment firm with more than $5 million in assets and/or accredited equity investors.

What Are The Benefits of Investing in Private Real Estate Investments?

1.   Diversification

Private real estate investments allow investors to have exposure outside of the equities markets. Also, using a private real estate fund exposes them to a range of asset classes, regions, markets, and managers. Especially now, when the future is unclear, investors should focus on risk diversification.

2.   Tax Breaks

Private real estate investments enable you to deduct operating expenses and depreciate the asset. This has the potential to lower your taxable income. You can also defer capital gains through a 1031 exchange REIT. This allows investors to sell the appreciated property and shift their original cost basis to new investment properties. Thus, incurring zero tax liability.

3.   Weak Link

Every investor aims for a portfolio with the highest return and least volatility. So, most are comfortable with a combination of stocks and bonds in their investment portfolios. That is until the market’s ups and downs begin to worry them. But, private real estate investments are immune to the daily shocks of trade. Thus, this helps investors manage the volatility in their portfolios.  Private real estate values do not fluctuate on a daily basis. But rather increase over time, which makes private real estate assets less volatile.

4.   High Returns

Private real estate provides investors with the opportunity to produce large absolute returns. An absolute return measures the amount of money an investment makes over time by taking into account appreciation, depreciation, and cash flows, and is stated as a percentage gain or loss on the initial investment. According to Preqin Statistics, a $100,000 investment in private real estate on January 1, 2001, would have been worth around $380,000 on March 1, 2017. On March 1, 2017. An identical $100,000 investment in the S&P 500 would be worth $255,000.

📝Key Takeaways

• Private real estate investment is the process of acquiring, investing in, or developing real estate. These get done in private markets rather than via publicly traded entities like REITs.
• Private real estate investment returns get determined by management talent and microeconomic variables. Thus, making them far less associated with public markets.

●     Only accredited investors could invest in private real estate before. But now, non-accredited investors can do private real estate investments with just $500 via a Reg A+ vehicle.

• Investors can have exposure outside of the public equities and debt markets.
• Investors can deduct operating expenses and depreciate the asset.
• Investors can defer capital gains through a 1031 exchange. So, they can sell the appreciated property and shift their original cost basis to new investment properties. Thus, incurring zero tax liability.
• Private real estate investments are immune to the daily shocks of trade.
• Private real estate provides investors with the opportunity to produce large absolute returns.

Way Ahead

So, if you are looking for a more solid investment vehicle than equity investments, then private real estate investment is the best.

But are you unsure where or how to start?

Assetmonk is one of the most effective alternative investment platforms on the market. It allows real estate investors to diversify their investment portfolios, maximize returns, and reduce risk more efficiently than ever before. How so? Via private real estate investing. A typical real estate investor may readily invest in premium commercial real estate through syndication real estate or real estate syndication and real estate crowdfunding with minimum investment yet generate huge returns.

FAQs

Q1. What are private real estate investments?

A. Private real estate investment is the process of acquiring, investing in, or developing real estate. These get done in private markets rather than via publicly traded entities like REITs.

Q2. What does it mean to invest in private real estate?

A. Private real estate investing is when a third-party sponsor handles investments in real estate assets. He will be compensated and will be incentivized to generate a profit for the investors.

Q3. What is the difference between private real estate and public REIT?

A. Private real estate investments get traded in private markets. REITs get traded publicly like stocks on stock exchanges and can get bought and sold easily.

Q4.What is the difference between private real estate and REITs?

A. A REIT is a firm that owns or finances income-producing real estate. Private real estate is the use of private individuals’ money than corporate capital. This gets used to invest in privately held real estate assets for commercial purposes.

Q5. Who can invest in private real estate?

A. Private real estate investing is often restricted to accredited investors. But, some managers use a Reg A+ vehicle. This lets non-accredited investors do private real estate investments with just $500.