Real Estate Private Equity: A Detailed Guide

Real estate private equity is the new strategy that brought sensation in the investment world. Every day, investors are increasingly seeing the benefits of this latest darling. If you can’t invest in large commercial real estate, real estate private equity investment is here for you. 

The best part of this strategy is that, with one fund, you can easily invest in different real estate-related assets. More than that, this sensational investment is highly taxed efficiently. If you structure it as funds, it will last many years. 

This way, you should expect a long-term capital-gain rate return rather than a short-term one. Unless you sell one of the fund’s real estate assets in one year, and this is before the pass-through depreciation benefits. 

To cut this long story short, if you combine everything, you will save up to 20% on tax benefits or even more on your annual profits. 

So can I have your attention? Yes, good. Let’s look at private equity in real estate in a broader light, including everything you need to know about it. 

What is private equity in real estate? 

First, let’s understand what private equity means. Private equity involves buying and managing a specific company before selling them out. 

Real estate private equity is an opportunity that allows you to pool your money and invest and own different types of real estate properties. You achieve this investment by making a considerable initial capital commitment. 

You get the funds from outside investors known as Limited Partners (LPs) which include insurance firms, funds of funds, endowments, etc. Then use the capital to purchase those properties and enhance them before selling them to acquire a return. 

Generally, real estate private equity deals with commercial real estate such as industrial, offices, and hotels instead of domestic real estate. And if they must deal with residential real estate, they usually do so through buying, holding, and renting out the residence to people. 

Types of real estate private equity investments

After understanding what real estate private equity is, it’s also essential to understand that you have several types of funds to select from for real estate private equity investments. 

1. Core 

As the most conservative strategy, especially if you are risk averse it will be best to consider core funds. 

Core funds are used to invest in high-quality and valuable assets that you are sure the risk is minimal. 

However, since the risk level is low, it usually comes with low returns attached to a predictable cash flow. 

2. Core plus 

This is slightly better than core in terms of returns if you accept more risk. It combines a mixture of modest property value levels and the property’s location improvement. 

3. Value-added 

The risks of value-added funds are relatively moderate to high. With these funds, you will buy a property and do some redevelopment.  Aim the market; you will sell the property whenever it’s good. 

Additionally, you must perform some management changes and physical enhancement, which sometimes requires capital constraints. 

Although the risk associated with this investment might be high, the potential returns can be tremendous and vast. 

4. Opportunistic

The returns from these funds are significantly high. It’s the best among the types that you receive the best profit if you are ready to take the highest risk level. 

Here, the best thing to do is to put your funds in an alternative investment. These include undeveloped lands, lightly trafficked areas, and underperforming markets. 

 6 Benefits of investing in real estate private equity

Understandably, you don’t like being a landlord or need help managing properties.  It’s also normal to want to earn some bucks and earn better returns at your comfort. 

So your best option is real estate private equity investment because it offers many benefits you will love. 

1. Steady flow of passive income

Once you select a real estate private equity investment firm you trust and believe in, your money won’t go to waste. You can sit down and watch how your money will do all the tricks for you. 

Furthermore, you can choose to hire experts that will assist you in growing your wealth. 

This method will allow you to rest and forget all those early morning calls or chasing rental fees. 

2. Earn now and later 

Whichever type of real estate private equity funds you choose, you will earn money now and later. Amazingly, these funds will not be reduced. Instead, it will increase with time when you complete the funding terms and sell the properties. 

3. Get profit from tax advantages 

You will gain profit from tax benefits because of property depreciation from your real estate private equity investment. This will shelter a massive part of the cash flow from taxation. 

4. Earn returns from strategies

Although REITs are often considered the best way to access diversified real estate pools, the strategy is not focused on producing higher returns. But with real estate private equity, you can select a specific risk profile from the ones described above and your return expectations. 

5. Protect your capital via diversification

Although you can invest in one property, if you want, you can use your private equity funds to support different diversified assets, properties, locations, and more. 

Moreover, investing across different properties will help minimize the risk. If this area doesn’t turn well, another property will surely bring good returns. 

6. Generate financial gain through expert care 

Managing real estate requires professional care. Ok, let’s look at it in detail. You must research, analyze, underwrite, acquire, develop, manage, and lease the property. 

This can be daunting, especially if you are a first-timer. But suppose it’s in the hands of experts. In that case, you can easily rest assured knowing that your money is well handled skilfully for you. 

5 Risks of investing in real estate private equity

If you are used to investing, you already know that the higher the reward, the higher the risk. Real estate private equity is also no different; it has its downsides and risks. As a professional investor, you must understand that every transaction has risks. 

So, you have already put the necessary steps to reduce these risks into your plans. Some of the dangers of real estate private equity include:

1. Regulatory risks 

Real estate private equity activities can be complicated; you must go through the local, city, and even state regulatory authorities. So before you invest, ensure you are aware of the current and potential environmental and where the proposed investment fits. 

If you are afraid of laws, or changes that might affect your investment, consider partnering with local civic leaders. 

2. Market price 

Many factors, such as interest rates, job growth, and changes, can influence a real estate market. It would help if you considered all these factors from macro and micro angles. This consideration will help you understand how societal trends can influence real estate demands. 

Expose yourself to many market diversity to smoothen your returns variations. 

3. Financial structure risks 

Many real estate projects depend on different income sources to fund the project. The income sources are capital stacks; you will find rules at every level. To mitigate this risk, the best thing to do is to understand these capital stacks. 

4. Asset risks

Whatever real estate project you decide to investigate, each has its risks. So to lower this risk, you need an explicit understanding of risks related to the project and find the best plan to reduce the risks. 

5. Liquidity risks

It’s essential to evaluate these risks before purchasing any private real estate investment. The risk factors include property type, location, price, and tenants.

If you want to mitigate these risks, invest in a high-value market. Ensure the property they are investing in has the potential of getting high demand in the long run.

Who can invest in real estate private equity?

Real Estate Private Equity investment is limited to specific people, including investors, institutions, and certain third parties. 

1. Private investors 

Before, only a selected group of accredited investors could invest in real estate private equity. But since things have now changed, other people can also support it. However, before investing, you must have at least $1 million in assets or have a constant annual of $200,000 and above. If you accumulated around $300,000 within two years, you could also be eligible for real estate private equity.

2. Institutions

The most considered prominent real estate private equity investors are institutions. 

These investors include pension funds, mutual funds, hedge funds, banks, endowments, insurance, etc. Real estate private equity institutions include Oaktree, Blackstone, BentallGreenOak, and Starwood Capital Group.

3. Third parties 

Third parties like asset management teams can also invest in real estate on behalf of an institution. Additionally, extra high net-worth people or family offices can invest as well. Some of the brokerage firms include Cushman & Wakefield, CBRE, JLL, Avison Young, Colliers, Transwestern, and Marcus & Millichap.

How to invest in real estate private equity 

Given the benefits of real estate private equity investments, you may want to venture into one. Here’s how you should go about it. 

  1. Find a reputable real estate private equity investment firm. Since there are various options, you should first research and understand the one with a good record and track that best suits your needs. 
  2. After finding the best firm, the next step is to invest your funds. The investment funds depend on the firm’s property specialization. Generally, the investment price was around $25,000 to $5 million. Once you invest, you should watch out for the properties you want to purchase. 
  3. Before choosing any property, consider the location, condition, and appreciation potential. 
  4. After finding the property you want, the real estate private equity firm will contact the seller, negotiate the price and buy it on your behalf. 
  5. The firm will add value to the property through renovation, make repairs and improve it before selling it. 

When is the best time to invest in real estate private equity? 

You will at least have a substantial magical ball to predict the certainty of the best time to invest in real estate. Some real estate brokerage projects perform well in the market, so you can’t expect the best investment time. 

It would help if you researched the firm thoroughly, checked its history, and evaluated its reputation. See how they managed uncertainty periods and downtimes before you decide. 

Top 30 real estate private equity firms to invest with

List of Real Estate Private Equity in the US
List of Real Estate Private Equity Firms in the US.

What are the differences between real estate private equity and real estate investment trusts?

People often need clarification on real estate private equity and real estate investment banking or funds. While the two might look similar, they are entirely two different things. Let’s look at some tangible differences between them.  

  • People invest more in real estate private equity than real estate investments trust because it has higher minimums and is mainly given to accredited individuals. 
  • Additionally, real estate investment funds have a high correlation to the stock market, while private equity has a low correlation. 
  • Also, you can diversify your investments with real estate private equity, while real estate investment funds require you to invest massive amounts of money in one property, making it riskier. 
  • Returns in real estate private equity can take years, while in real estate investment funds, you can withdraw your money after a day of investment.
REIT VS Private Funds Risk Factors
REIT VS Private Funds Risk Factors


If you are looking for the best way to generate a passive income look no further than real estate private equity. Additionally, it allows you to diversify your portfolio from the comfort of your home without the hassle of ownership. 

However, just like any other investment, it’s worth understanding what this strategy entails, how early you will come out of the private real estate funds, the associated risks, and more.  Still, even if you are familiar with all these, consult your investment advisor before venturing into any real estate private equity investment.

It would help if you also considered a real estate attorney. Combining these two hopefully will safeguard your real estate funds as a highly lucrative investment. 


Hi, I’m Avadhut, Founder of FinanceWalk. We help you make a rewarding career in any field based on your Inner GPS 🙂.

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