Investing in Real Estate without buying any Properties
Here are some options
Investing in Private Funds gives the Investor the opportunity to be exposed to RE and enjoy the benefits without being a developer, builder, landlord or operator of RE. There are many options available, however we have only chosen three to be explained.
1.- Private real estate focused funds
There are many private funds that develop, build, own and manage real estate portfolios without operating as a REIT. The difference is that the investor will have to dig deep to find them and make sure to conduct due diligence before investing in their PPMs.
Companies that are real estate-focused can include industrial, hotels, single-family, multifamily, self-storage, retail, mixed-use, land development, and commercial real estate.
These types of funds may offer the investors passive income, capital appreciation and tax advantages.
2.- Real Estate Notes
Real estate notes are a type of investment that you can get involved if you’re interested in investing in real estate but don’t necessarily want to deal with a brick-and-mortar building. When you’re investing in real estate notes, you’re acting as the bank.
This type of investing requires lots of education and it is time consuming. No matter if investors do all the due diligence themselves, or hire assistants, they must buy the right assets. Some investors may find this investment as a fantastic way to get into the real estate business but it’s not the normal “landlord type of scenario.”
It’s important that investors educate themselves first because notes are a completely different asset than just buying a piece of property, fixing and flipping, or buying it and renting it out. When buying a rental property, that’s the strategy, but when investors go with notes, they might have more than one exit strategy, and investors must be educated to perform well.
3.- Private Lending Funds (hard money loans)
Private Mortgage Funds are great for Investors seeking real estate exposure with passive income. Private funds’ investments move independently from stocks and bonds and have consistent and predictable income. Private Mortgage Funds make loans to seasoned real estate investors such as developers, builders, managers, operators, and landlords.
The loans are secured by real estate and those are referred to as “hard money loans” or “bridge loans”. Unlike most banks, which primarily rely on the creditworthiness of the borrower, Private Money Lenders mainly consider the experience of the borrower and the value of the underlying property.
At Capital Insiders, we encourage investors to look at some metrics when evaluating investing on private funds:
It’s important to look at the fund and how it has performed over the last years, however it is more important to evaluate the experience of the manager of the fund. It can be tempting to get tunnel vision and focus only on funds that brought stellar returns in recent years, but the managers play a huge role while analyzing performance and risks.
Make sure you select a fund manager (not a fund) who has the character and capabilities to overcome situations during a market shift. Managers must have a strong strategy for those days, a well-seasoned asset management team, risk-management policies and procedures, a full understanding of the market their serve as well as clear competitive advantages.