What’s the difference between a real estate fund and an asset? Find out as Chris Roberts tackles the subject.

Welcome to an episode of the new Create Your Fortune Podcast, the show where we help regular women and men transform their income, savings, and businesses into passive income through real estate. We teach, coach, and help you learn how to invest in safe, reliable “insider” investments to build real wealth and freedom.

This show is sponsored by Sterling Rhino Capital, a real estate investment group for regular families, professionals, and those left “out” of the insider access to high returns and safe ways to make a fortune. A+ rating by Better Business Bureau, Forbes Contributor.

 

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We are going to talk about the difference between a fund when you are investing in real estate or investing directly into an asset. I also get the question, “What are REITs, Real Estate Investment Trusts?” Those are online. They are similar to stocks or investing in real estate stocks. REITs and stocks are totally different than funds and directly investing in an asset like multifamily. Let’s talk about the difference between directly investing in multifamily and investing in a fund that buys multifamily real estate.

Let’s use the fund example with multiple assets in it. In this example, we have six assets that are going to go into that fund, allowing someone to invest in one investment through the fund. They sign one set of legal documents, a PPM, Private Placement Memorandum, and that investment will be diversified across six different apartment complexes. What is great about that is you spread the risk out.

One way over performs, one underperforms. You end up with an average. The goal is to outperform every time but the nice thing about a fund is its diversification instantly, whereas if you invest directly in an asset, something happens to that asset. You are along for the ride on that one asset. It’s investing in one type of stock versus a mutual fund.

 

A mutual fund allows you to spread your investment over a bunch of companies instead of one. That is one of the cool advantages of a fund. For this example, let’s consider new construction or build-to-rent Class an A to A-plus AA assets. For example, we are putting in the granite countertops. We are putting in the Zen gardens on the roof, the gyms, the dog washing stations, bike stations for parking the bikes, and sometimes restaurants, mixed-use, and sometimes office and retail at the bottom. Living up above, we want to create an environment where people do not want to leave because they have everything they need.

In this fund, you are going to be in a Class A asset class. You are going to be in a market where the average household income is over $100,000 a year. Those folks want the best of the amenities that are available. They are also in Class A markets like Denver and Phoenix, etc. You also get to take advantage of a 3 and a half to 4 and a half times equity multiple. Roughly $100,000 in, could turn into $350,000 to $400,000 over a 5 to 7-year period. You are going to share in the 8% preferred return for distribution.

In other words, you are going to be paid before any of the general partners are paid and then share in the average annual return, which is north of 35% based on it being a new construction fund. You get to share in the cashflow, the upside, the equity multiple, and the depreciation as well when we secure the occupancy letter for the asset, which usually comes around two years later.

People invest in a fund for diversification, higher-than-average returns, and risk mitigation.

Why would you invest in a fund? You would invest in a fund for diversification for the higher-than-average returns that I reviewed. You would invest in a fund because you want to mitigate your risk. You invest directly in a single asset, perhaps because you want to stick to the returns that that asset offers or maybe that asset is closer to you. Whereas, in our fund, we might be investing in assets that are spread over 2 to 3 different markets.

Some people like to invest right in their backyard. In this case, you would be investing in Downtown Colorado and Downtown Phoenix, Arizona. This is because of the very aggressive migration of folks and the corporations that are going into those markets. It is massive growth in average household income and job growth.

If you are an accredited investor, you can get into this fund for as little as $50,000, and your whole time is going to be somewhere between 5 and 7 years, well-diversified across several markets. There will be several different assets that are in this fund. Those are some of the reasons somebody might invest in a fund versus maybe investing in a single asset. Mostly all about diversification, higher than average returns, and then your level of comfort with the investment.

How do you get started if you are interested in getting into the real estate space? You go to the website and click the get started or Invest Now buttons. You go through and review all of the documents associated with the deal, watch the webinars, the videos, etc. Reach out if you have any questions, you will review the legal documents and the PPMs, and you will sign all of those documents electronically.

We encourage you to talk to your CPA if there is any reason to do that, which oftentimes, folks want to talk about K-1s and depreciation, etc. If you want to do that, feel free. Once you have signed those legal documents, you will get the wiring instructions and are invested. You are ready to go. That is how you get started in real estate investing funds.

 

Important Links

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• https://www.SterlingRhinoCapital.com/create-your-fortune-podcast/