Private Real Estate Investors
To put it most blatantly, private real estate investors are private individuals who invest the money in real estate markets. Whether in development, acquisitions, or financing, directly or indirectly through specialized funds, trusts, or private partnerships. Because of the relative safety and nature of the real estate markets, investing in it historically has been very popular. People need houses, and businesses need offices and factories, which makes an opportunity to invest in. Real estate is an industry that functions with a somewhat limited offer. After all, the Earth is “yay” so big. Which almost guarantees continual appreciation of the value of the investment and underlying assets. With the historically ever-increasing need for both living and workspace, it presents an attractive investment opportunity. And if you are a business owner looking for an investor, you are almost guaranteed to find them.
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What Are Private Real Estate Investors?
In a somewhat rude way, one can answer this question with “they are private investors for real estate.” But such a statement fails to describe the fact that as not all real estate investments are the same, also not all real estate private investors are the same. Broadly speaking, private real estate investors play a long game. Either by being interested in the long term and steady profit sources, or looking for a high level of profit after an extended period, usually three to seven years. Just as other private investors, as opposed to institutional investors, they are investing their own money, which gives them greater flexibility when choosing investment opportunities. Very often, investors prefer to specialize in one type of real estate. Because of how they are developed, function, and are exploited, properties broadly speaking dictate three types of investments: hotel, commercial space, and home investments.
There are three major types of private investments that you can explore as a business today.
Here is a simple break down of each of them:
Private Hotel Investors
The hospitality industry has some particular infrastructural demands, as it aims to satisfy some specific needs of the customers. Relaxation, enjoyment in natural beauties, or visitation of some uniquely significant places. The fact which is very well known to anyone who is investing in this industry or its real estate. Hospitality real estate investment includes investing in land and development rights, the development and ownership of hotels, but excludes actual running of the business.
For an investor, this presents an opportunity for generating a steady long term cash-flow generated by an asset that can significantly appreciate over time. On the other hand, a hospitality business owner frees themselves of substantial upfront investment in real estate. The development of hotels, for example, requires significant funding, first and foremost, because the locations that are popular among customers or can be made attractive are relatively rare and far between. Outside of the biggest names in the industry, many hotel business owners either do not have such a level of funds on their hands. In contrast, private lenders for real estate investors are capable of providing them with the necessary funding.
Demands for facilities in the hospitality industry are always increasing. And this kind of relationship between a business owner and real estate investors is on the rise while providing benefits for all sides involved.
Private Commercial Real Estate Investors
With the growth of many industries, over the years grows the need for space in which they conduct their business. Consequently, also the interest in and the level of private investments in the development of commercial space. Like all investments in real estate, this type is also considered to be a long-term and safe one. In private real estate investment in hotels usually has a goal for the investor to remain the owner of the property. On the other hand, in commercial real estate development, it is not unheard of that the investment is made with the aim of the sale of the property or parts of it.
Most often, these investments are made in the development of office space intended for leasing or sale to companies looking for it. And they are made with plans of housing a relatively high number of different businesses. This situation is something that dramatically benefits startups and other relatively smaller companies, as they can quickly and relatively affordably find space for their operations.
This type of investment is not limited just to office space but can include many other commercial purposes. Such as malls, storage spaces, and so on.
Private Home Investors
Investment in housing is probably the most popular among the real estate investors, both private and institutional. With the ever-growing population of the world, demand for a living space is also ever-growing.
The most widely known form of investment in real estate is the rental development. Where an investor is investing in the construction of one or several buildings intending to generate income and profit by renting it. Such investments are probably the most accessible ones in the real estate industry.
Even individual investors sometimes choose to invest in a single property intended for leasing or rental. Something which can be done with the help of private mortgage investors, which can be a relative, friend, or a company. Such funding can also come through private investors for home loans or private investors for real estate loans. Specialized companies that lend private funds to investors and developers. Depending on whether the property is developed by a tenant-owner or for sale or rental on the market, such private lenders are willing or not to provide financing. These companies are always providing the so-called “hard money”, named so because the lenders require such a loan to be secured by a hard asset, in this case, the property. But, investment in housing for a rental is not limited to single or multi-family residential buildings. It often involves some niche property development, such as students or seniors housing.
In the residential real estate industry, a very popular type of investment is in “flipping” the houses. A situation where an investor buys a residential property intending to increase its value by repairing, restoring, or upgrading it; and then selling it with a profit. Such investments are relatively short-term and rely on the fact that residential buildings and house markets dictate prices depending of the state the property is in. With time, due to the perishability of materials they are built of, real estate properties lose some of their value. While some relatively modest investments, compared to the costs of developing an entirely new property, can increase its value.
The housing market is also an area where private equity real estate investors do their business, solely for the reason of ever-growing demand.
How To Find Private Investors For Real Estate
Real estate investing is an investment type which has a relatively high entry point from the standpoint of financing. And this is often an obstacle among investors and developers. But, because of the relative safety of the investment in real estate, there are several ways to secure the financing. As opposed to traditional lending institutions, such as banks, sources of private money for real estate investors usually come with additional benefits. They are typically individuals or companies with vast experience in investing in real estate. As such, they have in their best interest that your investment succeeds, as their profits depend on it. And you can rely on their help and advice about potential hurdles and how to deal with issues that may arise.
Knowing how and where to find private real estate investors is frequently what makes or breaks some real estate projects.
Real Estate Investment Clubs
In many countries around the world, individuals with the same or similar interests form private or public clubs. And real estate investment is one of such interests. Joining one is a way to access the resources needed for investment. Not just monetary funds but also know-how, but also mentorship. In such clubs are always involved individuals with extensive networks of contacts among developers, private investors, and private lenders. And make an excellent place where people involved in all facets of real estate development tend to congregate. Club members usually tend to be involved in specific niche markets and use their membership to find people engaged in the same niches and build networks of contacts with potential partners or investors spanning extensive geographic areas. Thus assuring them to find new or more profitable investment opportunities.
Targeted networking is a bit more proactive approach to finding prospective investors. While it could be as simple as just talking with people in your network that you are looking for such one, one can also employ other tactics of building contacts. Many real estate agents have developed networks with private real estate investors. Simply put, they represent for them potential clients to represent in various possible deals. Visiting bankruptcy or foreclosure auctions is also a place where you can meet potential investors. Such sales are popular places where investors are shopping for their next real estate deal. While not obstructing the deal-making, one could get a chance to introduce themselves to a potential investor.
Another networking opportunity is specialized fairs and conventions, particularly those related to or aimed at developers. While developers mostly attend them, many of them are also looking for investment opportunities through networking and not new projects or technologies.
Private Real Estate Funds And Mortgage REITs
Private real estate investment funds and mortgage REITs are other potential sources of investment, which with a little bit of work and a good pitch, can be accessed.
Private real estate fund is similar to mutual funds. They can also be managed actively and passively. Generally speaking, there are three types of these funds:
- Real estate exchange-traded;
- Real estate mutual funds;
- Private real estate investment funds.
While the first two types are most often created with a specific investment in mind, the third type is typically created for the purpose of direct investment in real estate projects. As such, they present a chance of offering them an investment opportunity.
REIT or real estate investment trust is a type of corporation created to invest in the income-generating real estate, which can be traded on stock markets. Usually, they are either specialized for equity investment, which directly owns and manages properties, or for providing private mortgages to real estate owners or developers. Mortgage REITs can be a source of the “hard money”, and as such, they are both actively and passively looking for investment opportunities.
The great inter-webs is always an invaluable source of information about anything. And an excellent way to span great distances between people and businesses. There are many investor clubs, forums, or discussion groups, and social networks where you can meet people involved in real estate investing. While they do not give a chance of meeting potential investors face to face, they are an excellent chance for making the initial contacts when building up your network. And also allow you to learn who the players are, and establish a foothold in networks of your potential contacts.
Present A Plan
Probably the essential facet of finding a real estate investor is presenting a plan. Private investors are betting their own money on your project, and coming to them with a half-baked idea is a sure way to be rejected. When approaching a potential investor, you shouldn’t simply ask to be given money. Any investor will need to know why you are entering that particular market, with real estate investors is the same situation. You should have a clear and concise plan made with defined costs, profits, and margins. You should be prepared with the analysis of potential problems and ways to solve them and determine exit strategies and timelines. A good plan contains clearly presented upsides for a potential investor, but also the potential hurdles. A project made with the motto “hope for success, plan for a disaster” is a plan that inspires confidence among investors. And real estate investors face many people presenting them their projects, but they invest only in those they are confident that they can succeed.
The real estate market is considered to be a very stable one. By operating in an area characterized by a finite crucial resource, through history, it has generated steady rate of growth. But entering it can be a bit difficult due to very high entry-point, which necessitates finding outside financing for projects. Private real estate investors present many advantages over the institutional investors, such as banks. Besides higher flexibility, they are often more involved in the success of their investments, and even capable of providing necessary know-how to make a project a profitable venture. Because there are various types of real estate projects, there are also specialized investors, and finding a partner on a project is a matter of proper planning and execution.
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