Equity real estate is relatively new in the real estate market, and here, we will learn about its growth potential and risks. Real estate has been one of the lucrative career options for years. Like any other industry, there are some risks involved in it. Some people stay away from real estate investments because they think it’s complex.
Although it’s true to some extent, you can gain significant profits with the right understanding of how the industry works. Moreover, the real estate industry is getting crowded every day, and if you have never invested in real estate assets, it’s the right time to explore equity real estate and how to choose the right equity.
Equity Real Estate Explained
Equity real estate is an investment tool that allows investors to invest in professionally managed funds in the real estate market. If you are new to the real estate industry, it might be complex to comprehend what is equity real estate. But you will clearly understand it by the end of this article. There is another meaning of equity in the real estate market, don’t confuse that with equity real estate.
Types Of Equity Real Estate Investments
Many people assume equity real estate as REITs or real estate investment trusts. However, that’s not exactly the whole idea. Equity real estate is of two types:
Private Equity Real Estate
In the real estate market, professionally managed funds pool capital from private and public investors. But they are not the same as retail investors. Private real estate equity only allows large investors like institutional investors and high net worth investors to invest in their funds.
Unlike real estate investment trusts (REITs), private equity real estate requires a significant amount of capital and is open to high net worth investors. Private equity real estate funds are also costlier and involve high risk. These investment options are not available to retail investors. Now, take a look at public real estate equity or real estate investment trusts.
Private equity real estate funds involve different types of office buildings, including high-rise, urban, and suburban buildings. Apart from office buildings, industrial properties, shopping malls, retail properties, family apartments, are also come under private equity real estate investments.
Public Real Estate Equity Or Equity REITs
Public equity real estate or simply REITs are similar to mutual fund investments but in the real estate market. It’s a kind of investment available to individual investors where investors don’t need to worry about buying and managing any real property, but they can earn dividends from real estate investments.
Unlike private equity real estate, it doesn’t require a substantial amount of capital. It allows retail investors to gain profits from the real estate market. It’s a great investment tool to diversify your portfolio and manage your risk.
REITs can be broadly divided into the following types:
- Residential REITs: This type of real estate investment trusts invest in residential properties, including urban, suburban, residential apartments. You need to consider different factors like vacancy rate, the population living in rental properties, and other factors before investing in residential REITs.
- Office REITs: These types of REITs invest in office buildings. Typically, investors receive rental incomes from long-term leases, and you should consider different factors like employment rate, vacancy rate, and the economy of the state where these office buildings are available.
- Retail REITs: Above all, retail REITs are the best retail assets because of the highest market acquisition and value. More than 24% of the total REITs in America are from retail properties.
Apart from these three, mortgage REITs can be profitable, and you can earn significant income from these investments. So, you should do your research before you choose any type of investment in the real estate market.
Pros And Cons Of Equity Real Estate
Now that you understand equity real estate and its types. Take a look at the growth potential and the risks involved in this type of investment instrument.
Growth Potential Of Equity Real Estate
Real estate has been one of the best investment assets for many years because of its consistent return. However, you need to have the right knowledge to choose a real estate asset that provides you long-term growth and short-term dividends.
Private equity real estate can give you a return of 8% to 10%. However, the value can go up to 25-30% at times. On the other hand, you can expect to get a 7% return per year. However, the return can also be more than 15% at times.
Risks In Equity Real Estate
Private equity real estate investments are riskier than equity real estate investment trusts. However, individual investors should not worry about the risk because they are not allowed to invest in private equity real estate funds.
If you are a retail investor, you should do your research on the different types of REITs available in the market and invest in them. Since there are majorly five types of REITs and all of them have different risk profiles and growth potential, you can choose accordingly.
Which Equity Real Estate Investments Are Ideal For You?
Real estate investment trusts are suitable for every type of investor. That means retail, institutional, and high net worth investors can invest in REITs. Usually, REITs involve less risk than private equity real estate funds. Since private funds are only available for high net worth investors and institutional investors, it’s ideal for them.
For individual investors, REITs are the best option. But they need to conduct their own research and choose from the different types of REITs available in the market. There are several factors to choose the right REIT from the various kinds of real estate investment trusts.
I hope the above information has provided you some insights into equity real estate and how you can gain profits from it. As I mentioned above, there are two main categories of equity real estate; you should choose one that’s ideal for you. If you need any investment advice, don’t hesitate to consult a professional financial advisor.
- How To Manipulate People In 5 Easy Steps – 2021 Guide
- What Is Masculine Energy, And How To Balance It In 2021?
- Top 5 Serial Entrepreneurs Who Have Built Their Businesses In Less Time – 2021 Guide