Real Estate Hedge Funds for Accredited Investors
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BAM Capital is not a hedge fund. Consult your financial advisor as there may be other investment options that better suit your individual financial goals
Accredited investors are individuals or entities that meet certain financial criteria set by regulatory bodies like the U.S. Securities and Exchange Commission (SEC). These criteria are designed to determine an investor’s sophistication and ability to understand and bear the risks associated with certain investment opportunities.
There are certain investment opportunities that are exclusive to accredited investors such as venture capital funds, private equity funds, private placements, and certain crowdfunding or commodity investments. So for non-accredited investors, their options may be a bit limited because they don’t have access to accredited investor opportunities.
This means accredited investors are able to diversify their portfolio with investment vehicles beyond the usual options like the stock market. For example, private equity involves investing in privately-held companies that are not publicly traded on stock exchanges. These exclusive investments often require a higher level of capital commitment and come with higher risk and potential returns compared to publicly-traded stocks.
Hedge funds are among those investment opportunities that are exclusive to accredited investors. Hedge funds are investment funds that use various strategies to generate returns for their investors. These strategies can include leveraging, short-selling, and derivatives trading. Hedge funds often have high minimum investment requirements and are open only to accredited investors due to the complexity and risk involved. [1]
Investors are able to pool their money and invest in different securities in hopes of generating positive returns. Because they are not heavily regulated like mutual funds, they are quite attractive to investors. This gives hedge funds more leeway compared to mutual funds, meaning investors are able to try other investment strategies.
Not only can accredited investors afford the higher fees of hedge fund investing thanks to their high net worth, but they also tend to have the ability to assess risk properly due to their investing knowledge and experience.
What Are Real Estate Hedge Funds?
A hedge fund is a limited partnership between private investors. Professional fund managers manage these hedge funds and use different investment strategies to earn higher returns. Hedge fund managers typically have considerable flexibility in their investment approach. In fact, professionally managed funds may use techniques like leveraging, short selling, or trading of non-traditional investments to reach the desired returns. [2]
Hedge funds are often structured as limited partnerships so that the fund manager has the authority to make investment decisions on behalf of the fund. They will serve as the general partner (GP) while the investors act as the limited partners (LPs).
Hedge fund managers charge a “carried interest” which is also known as a performance fee. This is a percentage of the profits earned over a certain threshold. Since the manager’s compensation is directly tied to the fund’s performance, this fee structure will motivate them to pursue effective strategies for the investment.
Due to regulatory requirements and minimum investment thresholds, hedge funds are typically limited to accredited investors, institutional investors, and high net worth individuals (HNWIs). As you may already know, hedge funds are considered risky because of their high minimum investment and risky investment strategies. Fund managers may also charge higher fees than the more conventional investment funds. [2]
Because of the higher risks, hedge fund managers use risk employment strategies like portfolio diversification, hedging strategies, and proprietary risk models to limit their exposure to risk. It is natural for investors with higher risk tolerance to gravitate towards this investment strategy as it can also potentially be very rewarding.
These funds are typically only open to accredited investors. Accredited investors are individuals or entities that meet certain financial criteria set by regulatory authorities, such as the U.S. Securities and Exchange Commission (SEC).
An accredited investor is defined as an individual with an income of at least $200,000 per year ($300,000 for joint income with a spouse) for the past two years and an expectation of the same income in the current year, or a net worth of at least $1 million (excluding primary residence).
So now that we have briefly discussed what hedge funds are, we can talk about what real estate hedge funds are. Real estate hedge funds are investment vehicles that pool capital from accredited investors to invest in various real estate assets.
Just like with other types of hedge funds, real estate hedge funds may employ a variety of investment strategies, including but not limited to: value-added investing, investing in distressed or undervalued assets, and investing in income-generating assets like commercial real estate or apartment complexes.
Real estate hedge funds can offer the potential for higher returns compared to traditional investments. Keep in mind that unlike publicly traded stocks, real estate investments tend to be less liquid. But hedge funds may have specific redemption periods or restrictions on when investors can withdraw their capital.
There are still some similarities with regular hedge funds such as a high minimum investment, the presence of performance fees, and the need for conducting due diligence. Accredited investors who are looking for ways to diversify their portfolio with alternative investments should consider real estate hedge funds.
Whether or not this is the right investment vehicle for you depends on your investment goals and risk tolerance.
Benefits of Real Estate Hedge Funds for Accredited Investors
Hedge funds are comparable to mutual funds, except they are generally unregulated. This is why they are able to use a more aggressive investment strategy.
Hedge funds have become increasingly interested in real estate investing in recent years. This high risk/high reward investment strategy is a relatively new investment approach as it was only made possible at the end of 2012 with the JOBS Act. [3]
Hedge fund investing may be used to purchase real estate properties or real estate investment trusts (REITs). Professional real estate fund managers then take charge of the investment, including property management. Their aim is to generate high returns for the accredited investors. [3]
Real estate hedge funds may aim for underperforming real estate properties to buy them below market value. Hedging on real estate properties allows fund managers to own physical assets that can be developed further to generate more money.
The benefits of real estate hedge fund investing are numerous, including high returns, diversification, and the ability to customize your investment strategy. Accredited investors also get to enjoy the opportunity to work with top investment managers who have sufficient industry knowledge and expertise. [3]
Real estate investments, when managed well, can provide attractive returns. Hedge funds often employ strategies that aim to capitalize on market inefficiencies, unique opportunities, or value-added propositions that can lead to higher returns. Real estate hedge funds might invest in larger and more sophisticated properties that would be challenging for individual investors to access on their own. This exposure to institutional-grade investments can provide access to potential high-yield assets.
While real estate is often considered less liquid than traditional securities, real estate hedge funds can still offer more liquidity compared to direct property ownership. Some funds may have redemption windows, allowing investors to exit their positions periodically.
Real estate hedge funds can also offer various tax benefits, such as depreciation deductions and the ability to defer capital gains taxes through 1031 exchanges. These tax advantages can further boost investor returns.
Despite these benefits, it is important to note that hedge fund real estate investing is not for the faint of heart. Real estate hedge funds are illiquid, meaning capital is tied up for long periods. If the hedge fund fails, there is a possibility of significant losses. This is why it is only recommended for investors with high risk tolerance. [3]
The Best Real Estate Hedge Fund Alternative: Multifamily Syndication
Even if you have a high risk tolerance, it doesn’t hurt to look for alternatives for real estate hedge funds. Traditional investments like stocks and bonds have their limitations when it comes to potential returns, especially during periods of low interest rates or when markets are highly efficient. Hedge funds can potentially bring high returns but they also come with a significant amount of risk. A diversified portfolio can help mitigate the impact of individual investments, which goes a long way when it comes to risk management.
The good news is that accredited investors have a lot more options for portfolio diversification. It allows them to choose whichever best fits their investment goals and risk tolerance.
If you are interested in an alternative investment that has a much lower risk than hedge funds but still want to earn high returns in real estate, the best choice is definitely multifamily syndication.
In real estate, a syndication deal is similar to hedge funds because it involves multiple investors pooling their resources together. But the difference is that you are working with a syndicator who will serve as the general partner instead of a fund manager. The syndicator will put the deal together for the purpose of purchasing a single real estate property. [4]
In a syndication deal, the investors provide most of the capital needed to purchase the property in exchange for a share of the cash flow and depending on the deal structure, a share of the appreciation upon resale. Each syndication deal is different.
This deal can be done with any type of real estate, but multifamily syndication is the most popular because these large real estate properties are able to generate a consistently strong and stable cash flow. With a multifamily property, such as an apartment complex, you don’t have to worry as much about vacancies because there are plenty of units and tenants generating income in the form of monthly rent.
Compared to hedge funds, multifamily syndication is more reliable and less risky. Syndication deals offer diversification, which helps mitigate risk by spreading investments across multiple units or properties. [4]
Because the syndicator also handles property management, multifamily syndication is truly a passive investment. Accredited investors don’t have to provide any more input beyond their initial investment. The professional real estate syndicator will handle everything from acquisition to the property’s eventual resale.
Syndicators are typically experienced in the real estate industry and bring their expertise and specialized knowledge, allowing them to choose, acquire, finance, and support a high quality real estate investment property. Taking charge of property management means they will also handle the day-to-day operations of the multifamily property. Investors do not have to play the role of landlord or take on any additional responsibilities.
A multifamily real estate syndication deal offers passive income and diversification. It allows accredited investors to participate in multifamily real estate investing without the usual headaches that come with it.
For investors who are looking for an alternative asset class, multifamily housing through real estate syndication may be the ideal choice over real estate hedge funds.
Keep in mind that just like any other investment, multifamily syndication carries risks. Accredited investors know to evaluate every available syndication opportunity before choosing the one to participate in.
Investors may appreciate the flexibility of being able to choose which properties to invest in—something you cannot do with REITs or hedge funds. Syndication deals can also lower the barrier to entry since it involves pooling resources with other investors. Multifamily properties such as condominiums and large apartment buildings are normally expensive and therefore too risky to purchase as a long investor.
A syndication deal makes it possible to add multifamily real estate investments into your portfolio without spending nearly as much.
If you are interested in multifamily syndication, make sure to work with a trustworthy syndicator. Choose BAM Capital.
Why Accredited Investors Love Working With BAM Capital for Multifamily Syndication
A reliable syndicator with a proven track record is a must if you are an accredited investor looking into real estate syndication.
BAM Capital is an Indianapolis-based company with a strong Midwest focus, over $700 million AUM, and 5,000+ units. It is a vertically-integrated company that has already established itself as a leader in the industry. Being vertically-integrated, this syndicator can handle every step of the syndication process from purchasing high quality multifamily real estate to renovating and managing the property. BAM Capital will guide you from start to finish. [5]
This syndicator prioritizes high quality multifamily properties that are Class A, A-, and B++, particularly those with in-place cash flow and proven upside potential.
BAM Capital helps accredited investors grow their wealth while mitigating risk and creating forced appreciation. [5]
No investment is without risk. Make sure to consult your investment advisor or speak to a BAM Capital investment team member before making any financial decisions.
For accredited investors who want to enjoy the passive income and all the other benefits of being in a multifamily syndication, look no further than BAM Capital. Schedule a call with BAM Capital and invest today.
