There are plenty of people out there who want the benefits of real estate but don’t want to get their hands dirty.
For those folks, private funds can be a great option.
While it can be expensive to send your money on the long round trip to Wall Street … Main Street funds are a lot leaner and a lot more transparent.
We’re visiting with a Main Street real estate fund manager and exploring the benefits of passive investing through real estate investment funds.
In this episode of The Real Estate Guys™ show, hear from:
- Your hyperactive host, Robert Helms
- His passive-aggressive co-host, Russell Gray
- Real estate investment fund manager, Paul Moore
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A space for passive investment
You can be an active investor that does all the work … finds the market, puts together the team, rolls up your sleeves, even paints and carpets.
Or, you might leave that work to somebody else and invest passively in real estate.
Today we are talking about one of the many ways to passively invest … real estate investment funds.
A real estate investment fund has a specific purpose. It invests in a particular type of real estate … maybe in a geographic area, maybe a specific product type.
The difference is that a fund isn’t typically going to invest in just a single property. And, it’s not a single investor … multiple investors come together to share both the risks and the rewards.
In today’s environment with the volatility we’ve had in the stock market, many people are looking at other ways to invest.
Real estate investment funds usually invest in commercial properties, because they’re playing at scale. So, you become a Main Street investor investing in Main Street.
If you drive around your community and see a new apartment building or self-storage facility going up … it’s likely those aren’t owned by individual investors. But they aren’t usually owned by institutional investors either.
There is a middle space.
That space used to be a good old boys club … you could only find them if you knew the right people.
But things have changed. Depending on the type of investor you are, a fund can make sense for you in so many ways.
The basics of real estate investment funds
Our guest today has a multitude of real estate investment funds and is here to show his approach to that business.
Paul Moore is a fund investor and manager from Wellings Capital. Before COVID-19 hit, Paul and his team raised a record amount of money. By the end of March, they decided to hit pause on the fund.
“We pressed pause to evaluate opportunities in this new light,” Paul says. “We’ve been evaluating syndicators for years and have a short list of people who meet our criteria to invest with.”
The fact that the fund is made of passive investors means that Paul had this luxury … it’s not like they were stuck in escrow and wondering if things would work out.
Let’s talk about what makes the type of funds Paul works with different than your average syndication deal.
Often, syndication is a single property. You find investors that fit the criteria of your deal and your investment fits them.
What Paul does in a fund is bigger than that. Funds have multiple properties … which offers great diversity.
With funds, you’ll see diversification across five or six different metrics.
You’re diversifying across operators … across geographies … across asset types. You’re also diversifying across strategies and time.
All of that diversity helps create opportunities that are recession proof and still offer promising returns.
Diversification across time is a particularly intriguing part of a real estate investment fund.
An investor that joined a fund … say in June 2020 … would get the benefit of assets that have already been purchased by that fund.
Basically, you’re buying into a portfolio, and about three quarters of the assets have already essentially been de-risked.
Because a fund is diverse, you’re going to have a home run or two, a grand slam … and maybe a few base hits.
In Paul’s current funds, you’ll find multifamily properties, mobile home parks, and even self-storage.
Nothing in investment is guaranteed … but funds are pretty well protected pieces of collateral.
Understanding operators and managers
When you talk about funds, you have managers and operators. Some people act as both. They have a property management company and they manage portfolios.
That’s not how Paul’s team operates. They search out properties and operators.
“We spend a lot of time getting to know the operators,” Paul says. “We get to know everything about them, about their company, about the way they treat their employees. That due diligence really pays off for us in the long run.”
Paul says that the team is always more important than the property. Once you have a great operator, they can lead you to potential properties.
The right operator can stay with you and shepherd you through whatever comes in the market.
Paul’s job as a fund manager is managing and interfacing with these operators on behalf of all the investors who take part in the fund.
“We have such good operators that we never want to try and take control, but we do stay in close touch with them and get regular updates on what is happening in the market,” Paul says.
For more information on passive investing through real estate funds and what you could expect from working with Paul and his team … listen to the full episode!
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