When investing we note that with greater returns comes higher risk. But when investing in private equity real estate, there are ways to mitigate risk essentially increasing returns while maintaining similar risk or reducing risk while maintaining returns. Risk can be mitigated by investing on the General Partner side of a Real Estate deal. This form of partnership is generally termed General Partner and Limited Partner Joint Venture.
The partnership brings together people with money to invest in Real Estate and people that have capabilities in finding and operating Real Estate projects. The General Partner will supply 10% of funding while the Limited Partner will supply 90%. The profits shared are disproportionate to the ratios of investments because the General Partner supplies the Time, efforts and expertise to complete a project and provide those returns. On the other hand the Limited Partner is still needed because capital is critical.
General Partners do these things in a deal:
- Prospect assets
- endow and uncover value
- Negotiate and seek the best deal for all aspects of the project
- Pro-forma financial statements
- Seek Financing
- Manage Projects
- Due Diligence
- Provide the returns on investment
The General Partner does all of the leg work for the partnership and project, so they receive a larger portion of the profits. disproportionate profit sharing also incentivizes the General Partner to do a great job and protect the Limited Partners investments. Eventually multiple Limited Partner co-investments will form so that the General Partner can build higher-valued assets and interim provide everybody with more opportunities to invest and more returns.
The Real Estate Private Equity market can provide both builders as well as investors with high returns per project when compared to almost any other investment forms and industries. It’s an excellent way to receive high returns while also mitigating risk. You can expect anywhere from 15-40% return of investment depending on the company your working with, the segment your working on and the stability of the economy. It’s a great idea to add some high-return real estate private equity projects to your portfolio.