Systematic investments into real-estate investment funds are known to deliver good yields, but the need of understanding the opportunities, options and the potential banana peels in real-estate investments is essential to capitalize on the opportunity and reap potential benefits from the funds.
Some of the mistakes made in the systematic and sensitive aspects of investments in real estate, if addressed, can lead to consistent and risk free returns while creating avenues for long term wealth creation.
For wealth creators, investments in the real-estate market for passive income generation would be one of the key aspects of their portfolio. Unlike small-scale investments or buying a limited range of commercial or residential properties, wealth creation for high-net-worth individuals (HNWIs), pension funds, or institutional investors from private equity real estate investments’ is both pragmatic and opportune.
While it is a private equity real estate investment with a proven track record of good yields and sustainable returns from long-term investments, the question is about lapse of judgements and erroneous decision making that one should avoid in private equity real estate investments.
Some of the significant areas wherein potential investors must be careful of the developments are
Risk of leverage
One of the biggest challenges that lead to private equity real estate investments going wrong is the risks attributed to leverage.
Investors partnering with ineffective real-estate developers relying more on using too much debt for property developments, the risk is imminent. In general, for effective wealth creation from private equity real-estate investments should ensure that the properties are not having more than 75% of their value as debt.
Property Risks
Another critical misstep from investors targeting private equity real estate investments is the lack of due diligence on the properties wherein the investments are in progress or are targeted by the builders.
More often, the issues of land disputes or compliance violations could lead to properties into litigations, and it can lead to more challenges.
Ill-drafted Contracts
The other major mistake that could lead to hurdles in wealth creation or passive income generation from proper real-estate investments is the issue of ill-termed terms and conditions in the investment agreements.
Once a private equity real estate fund commitment has been contracted for value and time, it becomes legally binding. Thus, it is essential for real estate investment funds to have appropriate documentation with service-level agreements in place.
Choosing Right Developers
For every successful real-estate developer, there are hundreds of others facing hurdles in the completion of properties.
Yes, real estate investment funds can generate good yields, but one must choose an appropriate developer with pedigree, proven success, an ability to vertically integrate products and services along with technology driven research and analysis. More often than not, such private equity real estate companies would have successfully created and built properties while delivering consistent and risk free yields via their financial asset management operations for investors.
For over a decade, 33 Holdings has been at the forefront of southeast American real estate investments. With offerings ranging from private equity in real estate (three different funds), property construction and management abilities; every investment made is underwritten by an experienced team of professionals.
Planning a foray into private equity real estate investments? Engage with the 33 Holdings Investment Relations team for a discussion to know more.
