Business Weigh the difference between a private equity fund and REITs Ana LopezDecember 25, 20220392 views Preston Byrd is a real estate developer, wealth maker, public speaker and managing partner at Horizon Companies. getty For current and aspiring real estate developers looking to invest in commercial real estate (CRE), there are many different types of investment vehicles out there to be aware of, each with its own set of risks and rewards. In this article, I want to focus on two popular types of investments in the real estate industry: private equity funds and real estate investment trusts (REITs). Both have their own pros and cons, so it’s important to understand the difference between the two before making a decision. Private Equity Funds Right at the gate, I want to address private equity funds. A private equity fund is a type of collective investment strategy used to purchase a variety of equity assets. These funds are typically limited partnerships with a fixed term of 5 to 10 years. One of the benefits of investing in private equity is the potential for higher returns. However, private equity funds also typically carry higher risk for investors, as these investments are not publicly traded on an exchange. According to NASDAQ, there are a number of reasons why you should consider investing in real estate through private equity, even in these uncertain times. Primarily, private equity real estate companies typically invest in developments that are well positioned to weather an economic downturn, offering potential protection to an investor during a recession or market downturn. In addition, private equity real estate companies usually focus on long-term investments. This means that even if there is a dip in the market or in the performance of your portfolio, you can rest easy knowing that your investments are unlikely to go anywhere anytime soon because they are fixed assets. And last but not least, private equity real estate companies often have years of experience in turning distressed real estate investments. This means that if one of your portfolio investments gets into trouble, chances are the company can turn things around and get the investment back on track. Of course, it’s important for each person to assess their own specific risk tolerance to determine what works best for them. Real estate investment funds REITs, on the other hand, are companies that own and manage real estate that generates income. These can be office buildings, apartments, warehouses, hospitals, shopping malls, hotels and commercial forests. Some REITs can also finance real estate. One of the main benefits of investing in REITs is that they offer liquidity, which means you can typically cash in on your investment if you need to. REITs are also less risky than private equity funds, as they are required to distribute at least 90% of their taxable income to shareholders in the form of dividends. In my experience, what makes investing in REITs so beneficial to many is that they tend to generate consistent and predictable income over time. Once the property is built or acquired, it is the REIT’s job to lease and stabilize it. Once they stabilize, income is typically the same year after year, adding annual rental escalators. So, which type of investment is right for you? That depends on your individual goals and risk tolerance. If you’re looking for high-potential returns, private equity funds may be a good option for you. However, if you’re looking for a more stable investment with less risk, REITs may be a better choice. Both options offer a financial advantage and both involve getting involved in owning real estate. Ultimately, it’s important to do your own research and consult with a financial advisor before making any decisions. The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice on your specific situation. businessroundups.org Business Council is the premier growth and networking organization for entrepreneurs and leaders. Am I eligible?