How Funds Are Beating Active Investing In Real Estate In 2022

Feb 18, 2022

Well selected private equity fund investments are becoming even more attractive for real estate investors in 2022.

Here are just some of the reasons that some active investors are finally making the switch this year.

Access To Deals

One of the biggest challenges many real estate investors have been complaining about over the past couple of years is access to inventory. 

Publicly listed inventory has been slim. There has been plenty of it off market and behind the scenes. Yet sellers, especially those with bulk portfolios, have had to be even more selective and careful in who they sell to. 

It takes a strong resume and track record, in addition to plenty of cash capital to even get a shot at making offers on these assets. High level personal connections also make all the difference. 

If you aren’t able to buy in volume at least $5M or $10M at a time, then you won’t see these deals. This makes funds the ideal conduit for sourcing deal flow. 

Competition For Deals

Even when you do find assets that can be purchased, there can be a lot of competition nowadays – both from retail home buyers and big Wall Street backed funds. Many of whom are willing to overpay by 50% or more.

Having access to these off market deals, and being able to clearly stand out as the best buyer makes all the difference in being able to secure lower priced offers at better values. That means locking in equity and profit, as well as ongoing returns, all upfront on the buy side. 

Loan Quirks & Mortgage Debt

While there are a lot of lenders and lending products being marketed to the investment space, you’ve probably already discovered that it is rarely as easy and smooth as advertised. 

There can be a lot of quirks, especially in the underwriting process. Many who sell themselves as private and hard money lenders have tougher underwriting processes than many traditional banks have had in the past. 

These can easily derail individual investors’ plans for deals. Many lenders are not going to loan on mixed use property, property in need of serious renovation, those without a well documented rental track record, or to those without good credit and significant liquid assets. Those who skipped payments with the blessing of their lender in the pandemic, or who were thrown into forbearance plans may now find that lenders are counting those as loan defaults, and will block them from getting new credit. 

Intelligent investors may also recognize that while money is cheap, this is probably not the time to be loading up on lots of personal debt. It is time for building liquidity, and investing for strength. Which can be achieved better by investing alongside other equity investors in well chosen funds.

Truly Passive Income

Most forms of real estate investing are not very passive. These range from annual rentals, short term rentals, fixing and flipping, to even managing portfolios of mortgage debt. 

The pandemic has driven home the importance of truly passive income and more income streams. 

A fund can do all of it for you. With their buying power, and increased operational efficiency, investors are often finding they make just as much, without any of the work.

Strong Yields

Inflation is also increasing the need for strong yields. Especially risk adjusted returns.

For example, the NNG Impact Opportunity Fund offers preferred returns as high as 11%. When you do the math, this may present a much higher net ROI on your time than attempting to engage as an active investor. 

Investment Opportunities

Find out more about investing in secured debt and real estate, go to NNG Capital Fund