Private equity real estate investments allow private property investors to pool resources together to purchase, develop, upgrade, manage and sell properties. Typically, a private equity real estate (PERE) firm manages the property and may also handle negotiations to sell and acquire real estate. These firms allow property investors to add real estate to their investment portfolio without the hassle of managing the property.
This blog explains more about private equity property investing to help you determine the most suitable options for you.
Private Equity Real Estate Investment Strategies
Suppose you are considering investing in private equity real estate development. In that case, exploring your options and developing an investment strategy that aligns with your long-term financial goals is essential. Here is a look at the most common private equity investment strategies.
Real Estate Investments by Sector
Some real estate development investors select properties based on sector. For example, a REPE firm might only invest in office buildings, cell towers, commercial properties, multi-family residential buildings, or hotels. Larger firms may take a broader approach by only focusing on commercial or residential properties.
Real Estate Investments by Strategy
You may also choose to invest in real estate based on investment strategy. For instance, you might take a long-term approach by investing solely in income-producing real estate. On the other hand, you can make short-term investments, such as fix-and-flip investments.
Real Estate Investment by Geography
You can also base your real estate investment strategies on location. For example, you might choose investments in only the Southeast or Midwest regions of the country or only consider international investment options.
Real Estate Investment by Capital Structure
It is important to note that there are fewer regulations associated with REPE investments than RIETs. This factor allows REPE firms to take on numerous types of assets, such as debt. Therefore, be sure you know the firm’s holdings before investing.
Real Estate Investment by Deal Flow
You also want to know what role the REPE firm plays in making real estate investment deals. For example, do they actively make investment decisions or hold a more limited position?
Benefits Gained by Private Equity Property Investors
Private equity real estate funds are an excellent way for property investors to expand their investment portfolios without the added stress of managing the property. However, this is just one benefit of private equity property development investing. Here is a look at several other benefits of developing private equity strategies.
- Hedged risk: Private equity investment options provide long-term results that can lead to higher returns. Since these investments can take a decade or more to develop, investment managers can take their time to build a strategy that delivers higher results.
- Well-structured deals: In most cases, these real estate investments result in well-structured deals. This is because the private equity investment firm also has a vested interest in the success of these deals.
- Property ownership: Real estate investing is always a popular option for investors. It provides a tangible asset that holds at least a portion of its value, no matter the state of the market.
- Depreciation write-offs: Fortunately, the IRS allows you to maximize the return on your investment by writing off any depreciation amount for the building and any capital improvements made to the property.
- Dividends through profit: Depending on the structure of your investment, you may receive dividends on a monthly, quarterly, or annual basis. These dividends are based on profits made from business operations at the property.
- Less regulation: As mentioned above, there are fewer regulations regarding REPE investment, which allows these firms to develop more diverse real estate investment portfolios.
Private Equity Commercial Real Estate Strategies
Private equity commercial real estate investments allow property investors to pull their money together to invest in commercial real estate properties. This type of investment can offer excellent returns, but it has risks. Therefore, finding investment opportunities that match your financial goals and risk level is vital.
Here is a look at some of the most common commercial real estate investment options.
Investing in Shopping Centers
Despite shutdowns and supply chain disruptions during the global pandemic, shopping centers, including strip malls and shopping malls, are still performing well in many locations. In fact, investing in shopping centers can provide both capital appreciation and rental income. It is essential to do your research to make sure you select the right investment option. For example, look for commercial properties with solid performance histories located in a high-traffic area.
Investing in Industrial Real Estate
Industrial real estate, such as warehouses, storage facilities, and manufacturing plants, can be an ideal investment opportunity. Industrial properties often serve multiple purposes. First, a large industrial building can serve as a storage facility or manufacturing plant, making renting easier. Secondly, industrial real estate tends to provide higher rental yields, which can transition into higher returns.
Investing in Raw Land
Raw, undeveloped land is another commercial real estate investment option that property investors often overlook. One of the top benefits of investing in raw land is that it can be highly affordable due to a lack of competition. However, purchasing this land is not without risks. For example, you could have trouble finding a suitable buyer if this land cannot be developed. Therefore, it is vital to research the land’s history and location before investing.
Investing in Self-Storage
Self-storage investments have become one of the most popular commercial real estate development investment opportunities due to the industry’s strong performance during and after the pandemic. This type of investment often requires lower upfront investment and offers high returns in rental incomes alone. While this can be a good investment opportunity, it is still essential to do your due diligence and research any property before investing.