Invest In Real Estate Private Equity to Drive Capital Growth

Discover diverse private equity real estate investment opportunities.

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What is Real Estate Private Equity?

Real estate private equity (REPE) or private equity real estate equity (PERE) is a firm that raises capital from private investors for real estate investment activities. These private investment firms exclusively service accredited investors, institutions, and high-net-worth investors.

Since real estate private equity firms are exempt from public trading regulations, they can invest in various real estate asset classes, including both income-producing and non-income-producing assets.

Unlike traded real estate investment trusts (REITs), private equity firms in the real estate sector are exempt from distributing dividends. Alternatively, most private equity real estate returns are generated from capital gains and carried interest earned from profitable investment closures.

What is the Capital Structure of Private Equity Investments?

A private equity real estate investment has a similar structural profile to other commercial real estate deals. It can utilize various methods for initial capital intake. This characteristic is why investors often refer to this capital structure as "waterfall." Although real estate private equity funds typically invest in equity in real estate deals, their waterfall structure enables them to direct capital to other asset classes.

Private equity real estate firms can also invest in various types of debt, including bridge loans, senior loans, mezzanine debt, and preferred equity. This characteristic is why you should determine how your private real estate equity firm allocates capital. For example, Paperfree is transparent about its use of capital in real estate private equity funds. For example, the firm's Build-to-Rent private equity real estate funds only commit capital to build-to-rent projects.

What are the benefits of private equity real estate?

Unique access
Private equity real estate exposes large commercial real estate deals to investors who otherwise would not have access to these investments. This investment vehicle enables investors to diversify their portfolios, much like institutions. Additionally, a private equity real estate fund enables investors to diversify their investments across multiple assets, rather than focusing on a single commercial real estate deal.

Tax benefits
When structured as private equity real estate funds, private equity investments are extremely tax-efficient because most private equity real estate investments last several years. As a result, the IRS taxes the returns with the long-term capital gains rate instead of the short-term rate. This tax advantage means you can save 20% or more on annual profits from your real estate private equity investment when combined with pass-through depreciation.

Potentially higher returns
Most importantly, private equity real estate investments offer great potential for rewarding passive income returns and potential price appreciation, depending on the investment strategy.
For example, annual returns for
- Core Real Estate Investment Strategies range from 6% to 8%
- Core-Plus Real Estate Investment Strategies can yield 8% to 12%
- Value-add Real Estate Investment Strategies can yield even higher annual returns.

Who can be a private equity real estate investor?

Three investor groups can invest in private equity funds: private investors, institutions, and specified third parties. In the past, these funds were only open to an exclusive group of high-net-worth investors. However, in recent years, real estate equity funds have included institutional and accredited investors. Paperfree offers funds for accredited or institutional investors or a combination of both.

Who is an accredited investor?

To be classified as an accredited investor, you must have assets totaling at least $1 million, without counting your primary residence. Alternatively, you must earn a steady annual income of at least $200,000. Couples are eligible for most private equity real estate funds if they have had a joint income of $300,000 or more for the past two years.

What is a minimum investment?

The old initial capital contribution standard for investors was $100,000 to $250,000. However, new regulations have significantly lowered these requirements. For example, Paperfree requires a minimum investment of only $25,000 in its funds.