One Daily Minute
How Real Estate Private Equity Works
Got an interest in starting a real estate business?
Here is how it works:
Photo by Pierre Châtel-Innocenti
Sponsor (you) finds real estate deal
Sponsor raises equity (capital $$) from investors (family, friends, acquaintances), then uses a conservative debt (which enhances returns for investors).
Sponsor adds value to deal (renovation, raising rents, building ground-up, whatever)
Sponsor sells deal at a much higher price than when purchased, pays off the loan, returns capital to investors, takes his/her cut (promote). Everyone wins.
Rinse and repeat.
Long-term holders will refinance loan, and pull capital back to investors while keeping the property indefinitely.
Why sell when it's putting money $$ in everyone's pocket on a monthly basis?
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