Passive investing in real estate is a time-proven way to earn steady income from an important sector of the economy. Real estate funds that are professionally managed by industry experts can offer attractive risk/reward characteristics that provide superior results without a lot of drama.
Here are five ways passive investing in real estate debt funds can nurture your wealth:
1. Defined risk: Investors can choose funds that match their risk tolerances, from capital preservation to aggressive growth. A fund composed of first-lien real estate loans (commonly called hard money loans) collateralized by properties with after-improvement loan-to-value ratios no greater than 75 percent contain an inherent equity cushion against default risk. The notes and deeds in this kind of fund have terms ranging up to 12 months, thereby limiting interest-rate risk. All properties in the safe, secure WSF Fund IIhave been thoroughly underwritten by a company with two decades of experience developing, building and financing real estate.
2. Defined returns: A diversified fund of hard-money loans will produce reliable and definable returns that, in general, greatly exceed those of conventional debt instruments, such as Treasury and corporate bonds. For example, the WSF Fund II provides annual dividends of 7 percent, in part by using controlled amounts of leverage to achieve its return objectives.
3. Diversification: Portfolio risk is reduced by diversification, as the negative impact of the occasional bad investment is small compared to the size of the portfolio. As an investor, you achieve diversification in two ways:
- Your fund investment is diversified over many properties
- Your overall portfolio gains diversification by the addition of an alternative asset class with returns that are not highly correlated with those of conventional investments
4. Suitability for retirement accounts: You can shield the high income of first-mortgage funds through retirement accounts such as IRAs, 401(k)’s, Keogh plans and other qualified accounts. For top-bracket investors, a 7 percent dividend in a tax-deferred account is equal to an 11 percent dividend in an unsheltered account.
5. Steady income: A passive real-estate fund is ideal for retirees and near-retirees who want to supplement their incomes with steady, monthly dividends. A fund with a relatively short sunset period (five years for the WSF Fund II) and redemption rights is perfect for investors in the 50-to-80 age group who don’t want to tie up their money for decades. Look for funds who specify returns in after-fee terms – the WSF Fund II fees are 100 percent absorbed by the managers.
Contact Walnut Street Finance if you are an accredited investor who is looking to invest at least $25,000 in a passive real estate fund. We provide professional, expert management based on decades of development/construction and lending experience.