Real estate has long been considered a strategic investment – not only does it allow investors to potentially earn income, leverage debt to build equity, strive to build wealth, and potentially hedge against inflation, but it also can offer various tax breaks.
However, real estate investing is not for everyone. It generally requires a large capital investment to get started and is limited to those who are ready to engage in active management.
Those looking to access the potential benefits of real estate investing, seek to earn income, and diversify their portfolios, all while investing in passive real estate investment opportunities, can consider turning to alternative funds. In this article, we explore alternative real estate investment funds available for today’s cash investors and review examples of funds offered historically by Perch Wealth.
One alternative is to invest in a commercial real estate syndicate or fund. However, investments in funds, syndications and DSTs are typically illiquid. This can have an investor's capital tied up from three to seven years or longer, depending on the anticipated business plan and hold period. Those looking to preserve more liquidity opportunities have a few other options if interested in adding real estate to their portfolios.
Delaware Statutory Trusts allow accredited investors to co-invest in institutional-quality real estate alongside many others. This lowers the barrier to entry and allows for indirect ownership (the IRS still treats it as direct ownership for tax purposes), while the property is otherwise managed and overseen by an experienced third-party sponsor.
A REIT, which stands for "real estate investment trust," is a corporation that owns and/or manages income-producing commercial real estate. There are many types of REITs. Most will focus on a specific product type (e.g., retail, hospitality, multifamily housing, senior living facilities, student housing, office, self-storage, industrial and the like) or geography (e.g., commercial real estate in the Northeast vs. Southwest).
When an individual buys a REIT share, they are purchasing a share of the company that owns and manages the rental property. Shares of publicly traded REITs can be purchased and sold as easily as other stocks, even on a daily basis, thereby providing significant liquidity to investors.
REITs typically have well-defined investment parameters. They then invest in real estate that meets those parameters. By law, REITs are required to return 90% of profits to investors in the form of dividends.
An interval fund is a type of closed-end fund that offers liquidity to investors at stated intervals - typically quarterly, semi-annually or annually. This means investors can sell a portion of their shares at regular intervals at a price based on the fund's net asset value. However, there is no guarantee that investors can redeem their shares during a given redemption period. As such, interval funds should generally be treated as long-term investments but in turn, will usually seek to offer an illiquidity premium in exchange.
Interval funds can be used to invest in many securities and asset classes, including but not limited to real estate. A single interval fund is not limited to investing in a single asset class; in fact, they can invest in various assets as a means of diversifying their holdings.
There are dozens, if not hundreds or thousands, of different types of investment funds. These include equity funds, bond funds, money market funds, mutual funds, and hedge funds. Many investors have started investing in real estate through one of these types of funds.
A real estate income fund is a specific subset of funds that is focused exclusively on investing in income-generating real estate. Real estate income funds provide another entry point for those looking to invest cash in large commercial real estate portfolios. Real estate income funds are particularly appealing to retail investors who want to own institutional-quality real estate that would otherwise be out of reach to them.
A real estate income fund pools capital from many investors, and then the fund's sponsor oversees all of the fund's activities - from due diligence and underwriting, to property renovations, stabilization, ongoing management and eventually, disposition. Depending on the nature of a real estate income fund, the fund can have different investment minimums as well as lengthy hold periods and therefore, the capital invested should be considered illiquid during that hold period.
Are you ready to consider investment options that seek to provide greater, more predictable returns on your investments? If so, it might be time to consider investing in a high-yield real estate fund. Contact us today. We are happy to discuss available options with you to determine which combination of investments would be best for you based upon your specific investment objectives.
General Disclosure
Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only and should not be relied upon to make an investment decision. All investing involves risk of loss of some, or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.
Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.
1031 Risk Disclosure:
Perch Financial LLC and Emerson Equity LLC do not provide legal or tax advice. Securities offered through Emerson Equity LLC Member FINRA/SIPC and MSRB registered. Emerson Equity LLC is unaffiliated with any entity herein. 1031 Risk Disclosure:
No offer to buy or sell securities is being made. Such offers may only be made to qualified accredited investors via private placement memorandum. Risks detailed in a private placement memorandum should be carefully reviewed, understood, and considered before making such an investment. Prospective strategies and products used in any tax advantaged investment planning should be reviewed independently with your tax and legal advisors. Changes to the tax code and other regulatory revisions could have a negative impact upon strategies developed and recommendations made. Past performance and/or forward-looking statements are never an assurance of future results.
Many of the investments offered will be only available to those investors meeting the definition of an Accredited Investor under SEC Rule 501(A) and offered as Regulation D private placement securities via a Private Placement Memorandum (“PPM”). Prospective investors must receive, read, and understand all the risks associated with buying private placement securities. Investments are not guaranteed or FDIC insured and risks may include but are not limited to illiquidity, no guarantee of income or guarantee that all tax advantages or objectives will be met and complete loss of principal investment could occur.
Risk Disclosure: Alternative investment products, including real estate investments, notes & debentures, hedge funds and private equity, involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop. There may be restrictions on transferring interests in any alternative investment. Alternative investment products often execute a substantial portion of their trades on non-U.S. exchanges. Investing in foreign markets may entail risks that differ from those associated with investments in U.S. markets. Additionally, alternative investments often entail commodity trading, which involves substantial risk of loss.
NO OFFER OR SOLICITATION: The contents of this website: (i) do not constitute an offer of securities or a solicitation of an offer to buy of securities, and (ii) may not be relied upon in making an investment decision related to any investment offering by Perch Financial LLC, Emerson Equity LLC, or any affiliate, or partner thereof. Perch Financial LLC does not warrant the accuracy or completeness of the information contained herein.
