Private equity real estate funds provide accredited investors with a number of important benefits that are not readily available through other types of real estate funds, including preferred returns as well as tax advantages. For individuals who are seeking exposure to real estate and have at least $50,000+ to invest, this approach is compelling.

Here, we describe how private equity real estate funds are structured, the key benefits of investing in these funds and a summary of Regulation D Rule 506 that governs the types of investors that can participate in a private equity real estate fund. We then describe the different phases of developing properties a fund may undertake and provide a high-level summary of The Young Soo Investment Fund, a private equity real estate fund available to accredited investors.

The Benefits Of Real Estate Funds

Real estate investment funds offer a number of important benefits to investors, particularly those with substantial portfolios. Here are some of the key advantages of investing in real estate via a fund: 

Diversification

Real estate as its own asset class offers the benefits of diversification to investors who often have most of their portfolios in stocks and bonds.  Real estate fund returns are not strongly correlation to the ups and downs of the stock market, which can be volatile over short periods. Over time, the demand for real estate tends to increase with population growth and the overall economy. 

Variety

Investors can choose from a wide range of real estate funds that focus on different geographic areas, property types and risk/reward profiles. This allows investors to customize their portfolios without having to buy individual assets directly. 

Preferred Returns

Returns from real estate investment funds are usually used to provide a profit and return of capital to investors before the fund sponsor earns a profit. This motivates the sponsor to manage the fund to achieve its profit target and helps to keep the interests of the investors and the sponsor aligned.

Tax Efficiency

Most real estate investment funds are designed to generate returns over a number of years. Unless fund assets are sold within a year of the fund’s inception, returns will be taxed at the long-term capital gains rate rather than the short-term capital gains rate. In addition, investors in real estate funds may benefit from pass-through depreciation.