– Real estate investing can be a lucrative venture for those who know how to navigate the market. However, there are many factors to consider when deciding to invest in private real estate.
In this episode, Jeremy Keil discusses how to invest in private real estate with our guest, Steve Kelly. Steve shares his insights on the various ways you can invest in private real estate and what you need to know to get started. He covers why someone would want to invest in real estate, the benefits of diversifying your investments, and some essential terminology you’ll need to know along the way.
- Why someone would want to invest in real estate and the different ways that they can
- The big difference between public investing and private investing
- The benefits of diversifying your real estate investment across different states and categories
- What you need to know if you want to get started in investing in private real estate
- And more
How To Invest In Private Real Estate
Why You Should Invest In Real Estate
Alternative investments, such as private real estate, are becoming more popular among advisors and individual investors. One reason for this is that private real estate tends to be less volatile than the stock market, making it a good hedge against volatility in the public markets.
Private real estate falls under alternative investments, such as private equity and venture capital, which advisors recommend to clients to diversify their portfolios and mitigate market volatility. Overall, private real estate provides numerous benefits for investment strategies.
There are different ways you can invest in private real estate. Some options include publicly-traded REITs, direct self-ownership of properties, and passive investing in private real estate.
Publicly traded REITs can be volatile and may not necessarily reflect the actual value of the underlying properties. Self-ownership of properties requires more hands-on management and maintenance. Passive investing in private real estate, like what MLG Capital does, offers a diversified approach with lower volatility.
The Difference Between Public & Private Investing
There’s a significant contrast between public and private investing, mainly regarding the accessibility to information.
In public markets, everyone has access to the same information since publicly traded companies are required to publish the same information. On the other hand, in private markets, that is not always the case.
Different managers can report their quarterly statements to investors differently, and smaller private deals may not have much information about where your money is being held or what distributions are coming your way. While some private managers, like MLG Capital, publish quite a bit of information and are transparent about it, there’s still a big gap between the information you might have from the manager and the ability to review or evaluate the opportunity.
Additionally, if you’re considering investing in an individual property, you may have to value real estate on your own with a third party to verify if the assumptions that the manager is telling you are accurate or not.
Why You Need To Diversify Your Real Estate Investments
Diversifying real estate investments by location and asset classes is crucial for managing risk, increasing potential returns, and providing investment portfolio flexibility.
Investing in multiple locations can help mitigate risk. The real estate market in any given location can be influenced by a variety of factors, such as economic conditions and population trends. By investing in different locations, you can spread your risk across different markets and minimize the impact of any negative events that may occur in one particular area.
Different asset classes in real estate can offer different levels of risk and return.Therefore, it is important to diversify your investments among multiple asset classes. By investing in multiple asset classes, you can spread your risk across different types of properties and potentially increase your overall returns.
Various asset classes can also provide opportunities for passive income, such as rental income from commercial and residential properties.
What You Need To Know Before You Invest In Private Real Estate
When it comes to investing in private real estate, there are several factors that investors should consider to ensure they are making informed decisions and managing their risk effectively.
One key aspect is the laws that are in place to protect investors from potentially risky investments. The Securities and Exchange Commission (SEC) has set up regulations that require certain disclosures and filings from companies that are offering private real estate investments. These regulations help protect investors from losing their money by requiring companies to provide information about the investment’s potential risks and rewards, as well as financial and legal disclosures.
Access to information is a critical consideration when investing in private real estate, which can be more challenging due to a lack of available information compared to publicly traded REITs. However, investors can gather data from industry publications, professional networks, and investment advisors to make informed decisions.
Investors should also be aware of the typical minimum dollar amount required to invest in private real estate opportunities. These investments often require a higher minimum investment compared to publicly traded REITs, which can make them less accessible to smaller investors.
Important Real Estate Investment Terminology
Understanding the terminology used in private real estate investing is also crucial for investors. Some key terms to be familiar with include “preferred return,” which refers to a set rate of return that you receive before the sponsor or developer receives any profits, and “return of capital,” which is the return on the initial investment amount to you. It is important to read the operating agreement and understand each of the fees and terms associated with the investment. Some terms could have different definitions depending on the offering documents.
Tax efficiency is also an important consideration, as you may be able to take advantage of tax deductions or other benefits through investing in private real estate. Cost segregation is a strategy used to accelerate tax deductions by allocating the purchase price of a property to components, such as appliances or parking lots, which have a shorter depreciation life than a multifamily property.
Investing in private real estate offers opportunities for diversification and potentially higher returns, but you should approach these opportunities with caution and ensure you are informed about the risks and potential rewards. You should understand the regulations, access relevant information, and familiarize yourself with the terminology to make informed decisions and manage investment risk effectively.
To learn more about investing in private real estate, check out the resources below!
- MLG Capital’s Blog
- MLG Capital’s FAQ about real estate investing
- Free Retirement Planning Video Course: 5stepretirementplan.com
- 3 Things You Should Know Before Choosing A Financial Advisor
- 7 Questions That Could Make or Break Your Retirement
- Subscribe to Retirement Revealed on Google Podcasts
- Subscribe to Retirement Revealed on Apple Podcasts
Connect With Steve Kelly:
Connect With Jeremy Keil:
- Keil Financial Partners
- LinkedIn: Jeremy Keil
- Facebook: Jeremy Keil
- LinkedIn: Keil Financial Partners
- Book a call with Jeremy
About Our Guest:
Steve Kelly, AVP of Investor Relations at MLG Capital, focuses on building relationships with new and prospective investors and improving their experience. He enjoys staying active and engaging in outdoor activities such as running and golf. Steve also leads a church youth group and plays guitar for the worship team. He is an avid Wisconsin sports fan and loves to travel with his wife whenever possible.
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