Private Equity Real Estate & Its Place In A Balanced Portfolio

When it comes to building a balanced and diversified portfolio, private equity real estate plays a key role. Though for a lot of investors it is an unfamiliar and complicated asset class. This book will tell you everything you need to know if you are an accredited investor looking to make a private real estate investment.


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What questions should you ask before you invest?

First, we will go over the fundamentals. How portfolios are benefited by real estate, common strategies, and portfolio allocation guidelines for private real estate. From there, we will help you get past glossy property brochures so you can make sure a potential investment corresponds with your own risk tolerance and investment goals.


Mistakes In Real Estate Can Be Costly

Whether you are investing actively or passively, knowing the right questions to ask is essential to avoid costly mistakes
Access Imediately

You don't have to wait for a follow-up email or any outreach from our team. If you are on this page that means we want to give this free resource to you so you can immediately see the massive value that comes with being around Freedom Venture.

Checklist Items

This Ebook is not for beginners and will give you valuable information that you can use immediately to start evaluating real estate opportunities. If you can learn even one thing from this whitepaper would it will be worth the download?

Refer Back To The EBook

There is a LOT of information packed into this EBook but you don't have to read it all at once. Download the book, ask questions, and refer back to the book as you come across deals and need to jog your memory on what you should be looking for in a potential investment.

Discover how your portfolio can benefit from private real estate
Institutional Investors have long understood the merits of private real estate investments - namely tax efficiency, high absolute returns, and portfolio diversification.

Bonus Questions

Let's get some topics addressed now and dive into more detail in the book
How Internal Rate of Return (IRR) Can Mislead Investors

Many investors mistakenly compare IRR to annualized returns to make investment decisions, which can be a costly mistake. IRR, on the other hand, attempts to give investors the equivalent annualized rate of return but takes into account the timing of cash flows, even if money is invested for short periods of time such as days or weeks. IRR also assumes all distributions will be reinvested immediately, which means there is a built-in compounding assumption that actually doesn’t happen. Real wealth is created through the compounding of money over time, which is captured in the annualized return metric, but not IRR.

The Impact of Leverage on Real Estate Returns

One key metric that investors need to pay close attention to when comparing real estate deals is the amount of leverage used in the capital structure. In other words, how much debt is being used to finance the property and generate the returns? Simply put: more leverage means more risk. Debt can enhance returns when projects go according to plan, but it also works in reverse.

What's the difference between a REIT and Private Equity Real Estate?

The value of private real estate is based on the actual value of property. Conversely, in a public REIT, the share price value is determined by daily market forces, which means the share price of a public REIT may not reflect the actual value of the underlying real estate. In some cases, the share price can value the REIT 30% higher or lower than the actual value of the underlying real estate. Private real estate values don’t move much on a daily basis but rather appreciate slowly over time, which is why private investments are less volatile than their public counterparts. Both vehicles have pros and cons and the optimal portfolio has a combination of both. Public markets offer liquidity, but that comes at the expense of volatility and private investments offer investors low volatility, but with that comes illiquidity.

Cap Rate VS Return On Cost

A cap rate is the rate of return you’d expect to receive from a property during the first year of ownership, excluding the cost to improve the property and financing costs. Think of a cap rate as the dividend one would receive in the first year if the property were acquired with all cash. The cap rate is calculated by taking the Net Operating Income (NOI), which is the property revenue, minus the necessary operating expenses, and dividing it by the purchase price.

Return on Cost is a forward-looking cap rate; it takes into consideration both the costs needed to stabilize the property and the future NOI once the property has been stabilized. It’s calculated by dividing the total project cost by the potential NOI. We use return on cost to determine if we’ll potentially generate an income stream greater than what we could achieve if we purchased a stabilized asset today.

What are Private Equity Waterfalls, Clawbacks & Catch-Up Clauses?

The waterfall defines the way in which cash distributions will be allocated between the sponsor and the investor. Waterfalls, clawbacks and catch-ups are terms used in private investing that define how distributions flow from the investment to the partners, what happens when things don’t go as planned and dictate the terms of the manager’s performance fee. Every investment has a defined waterfall and it’s important to understand how it works because an unfavorable waterfall can tilt risk towards an investor.

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