Investing In Real Estate For Beginners: Private Equity Fund [7]

Summary:​ A private equity fund is an investment model where investors pool their money together into a single fund to make investments.

Private Equity Funds are usually limited liability partnerships with a designated manager or management group. While the manager actively manages the equity fund’s investments, investors are not necessarily required to be directly involved on a regular basis. However, as an investor, it is important to have the financial and real estate knowledge necessary to understand the risks and potential returns of each investment, because minimum investments are generally quite high.

Access to private equity funds is generally limited to accredited and institutional investors with high net worth. Investment minimums can vary but are usually not less than $100,000. Private equity funds typically use a “two and twenty” model, in which they charge a 2% annual management fee and an additional 20% fee on any profits that the fund earns. Private equity funds are generally illiquid as well, and therefore necessarily limited to investors who can afford to tie up large amounts for long periods of time.

Publicly-traded REITs are registered with the SEC and traded in the stock market. Unlike most real estate investments, these are highly liquid with no investment minimum, so investors can buy and sell them without barriers. While public REITs offer the greatest access, because they are correlated to the public markets, they are one of the real estate investments subject to the most volatility.

A public non-traded REIT is somewhat of a hybrid between a publicly-traded REIT and a private REIT. They are registered with the SEC, but not traded on the stock exchange. They can be open or restricted and their investment minimums can vary. They are usually illiquid (or hard to sell quickly) and can carry high investment fees, but this is not always the case.