Types of private equity commercial real estate funds
Investors looking forward to purchase a commercial real estate privately can make use of private equity funds allocated exclusively for them. These funds do not come under SEC rules.
DC Fawcett Reviews throws light on the 4 investment strategies to avail private equity funds in this article. They are core, core-plus, value added and opportunistic.
The risk-free strategy is core and requires only low investment. In other words, it is the safest form of investment. You can buy or sell assets which have low-vacancy rates. You can get a steady cash flow and you can sell the property easily. A class building comes under this category. These investors have to make a huge capital investment initially. They are considered to be an alternative investment apart from bonds and average internal rate of return is more or less 10 percent. These properties are usually situated in cities like New York, Chicago, San Francisco, and Washington. Investors with good credit are mostly eligible. These properties are usually owned by REIT, institutional investors. When there is an economic downturn, the investor may lose his tenants.
It has mild risk and ROI (return on investment) is higher when compared to core investing strategy, you make efficient investments and invest on stable assets. This strategy is considered when there is an improvement in the lease value and if there is a potential growth for rental properties. Light cosmetic rehab is required for these properties and investors have to choose properties that are quite appealing.
It involves moderate risk but returns are high. The investors purchase properties which will have a subsequent increase in the property value in the longer run i.e. return on investment as they need to do heavy rehab work before occupying the property. 10 to 15 percent internal rate of return can be expected. Leasing is considered to be a key factor in this strategy. With strong negotiation, you can get tenants in a competitive market. 55 percent of the investors come under this category.
An investment strategy involving high risk properties as well as risk-quotient is high. These properties require major renovation and rehab. The high-vacancy rate properties come under this type which may lead to no or minimal cash flow at the time of occupation. The time period of a typical asset lasts long which can be 3 to 7 years or a decade or so. The occurrence of scam is high in these kinds of properties as sellers quote a higher price than the market value and sell off the property to first-time home buyers. New development properties are also included in this category. The remaining 45 percent of the investors use this strategy. Foreclosed homes and distressed properties come under this category. You can learn more about foreclosed homes in Dc Fawcett virtual real estate investing club.
Other investment strategies used are corporate and security. From the review, we infer that most of the investors should use core or core-plus investment strategies to stay safe. The investor should understand the risk involved and concentrate on return on investment.