High net worth investors have dozens of options when it comes to where they can invest their capital. One option is private equity real estate.
Private real estate investing uses private individuals’ money to purchase privately held real estate assets, usually for meant commercial use. There are three main ways to accomplish this.
1. You can invest in an individual syndication.
An individual syndication is when you, as a high net worth investor, pay for ownership or partial ownership in a single property of your own choosing. For example, when you give capital to a local contractor who is building a new multi-family complex in town, you’re investing in an individual syndication.
This is not a diversified investment; you’re investing in one building in one geographic area in one asset class. It opens you up, potentially, to greater amounts of risk. However, the returns could also be quite high if the building is incredibly successful.
2. You can invest with a private real estate firm using a fund model.
A fund model can be compared to a mutual fund in traditional investment terms. Typically managed by a firm or a manager, the fund is is a portfolio of multiple (20-25) properties in varying geographies, asset classes, and economies. This helps spread out the risk of the investments. You’re also not the only investor into the fund; there are other investors whose money is also going toward the purchase and improvement of these properties.
Diversifying a real estate investment portfolio in this way can be beneficial to high net worth investors, especially those who are new to real estate investment or who would like more of a “hands-off” approach to managing their investment capital. This is the structure offered by MLG Capital.
Imagine that you have $500,000 to invest into real estate. As an individual, this is not enough to build a new commercial property, but it’s enough to invest into another developer’s project or into a fund of twenty or twenty-five properties. You have two choices:
- Invest all $500K into one property. You own a larger amount of the property, but it’s all in one geographic area and asset class, so it’s not diversified.
- Invest all $500K into a fund structure, where your capital is invested into twenty different properties at once. You own a lesser percentage of each individual property, but your money is diversified across geographies and asset classes.
3. You can build your own real estate structures.
For investors with a very high net worth, building your own real estate structures may be an option. This carries a great amount of risk, but can also yield great reward (similar to individual syndication). The advantage is that all of the decision-making lies with you as the contractor; the disadvantage is that if this isn’t your area of expertise, there is a steep and potentially expensive learning curve.
Your financial goals and personal preferences should influence your decision, but so should your logic. Always ask a myriad of questions of your partner, the contractor, or the manager you’re considering. That’s the only way to fully understand the options you have and what you’re investing in.
Check out our new ebook has even more tips and expertise to help you become a better investor in private equity real estate.