By Steve Haskell, Vice President, Kay Properties and Investments, LLC
The recent fluctuations in the United States stock market have many investors looking for more conservative and less volatile investments. That’s why more and more investors are attracted to Real Estate Income Funds.
While Kay Properties & Investments is best known for its expert-level knowledge of Delaware Statutory Trust 1031 exchange investment strategies and opportunities, the company also has a great reputation for working with nationally recognized real estate sponsors to source and structure All-Cash/Debt-Free Real Estate Income Funds for accredited investors.
What is a Real Estate Income Fund?
In general terms, any “income fund” is simply a pool of capital that has been assembled on behalf of a group of investors. There are literally tens-of-thousands of different types of investment funds, including equity funds, bond funds, money market funds, mutual funds, and hedge funds. While direct ownership of real estate has been a popular investment for centuries, recently many investors have also started investing in real estate through participation in a fund.
A Real Estate Income Fund is a specific subset of funds that is focused exclusively on investing in potentially income-generating real estate. Real estate income funds provide another entry point for those looking to invest in large commercial or multifamily real estate portfolios. Real Estate Income Funds are particularly appealing to retail investors who want to own institutional quality real estate that would normally be out of reach for them. A Real Estate Income Fund pools capital from many investors, and then the fund’s sponsor oversees all the fund’s activities, including performing due diligence, underwriting, and property management. Investing in a Real Estate Income Fund is a great way to potentially generate passive income, gain access to institutional level assets, and avoid the responsibilities of direct ownership.
Three Distinct Benefits of Investing in a Real Estate Income Funds
The ability to diversify in real estate funds has attracted conservative investors that want to avoid the concentration risk that often accompanies purchasing one piece of real estate. Typically, real estate investing requires a large down payment in order to obtain a loan with reasonable terms, tying up a significant portion of investors’ wealth in a single asset. Funds allow an investor to often place a smaller amount of cash into a highly diversified portfolio, therefore mitigating risk through diversification. Not only do funds allow investors to diversify in different pieces of real estate all over the country but investors can also diversify their investment by asset type and tenants. Funds may hold multifamily apartments, net lease commercial assets, medical, industrial, etc. Asset types can have varying market cycles. Diversifying one’s investment across asset types and geography can potentially insulate their investment from market volatility.
*Diversification does not guarantee profits or protect against losses.
An additional benefit to real estate income funds is the potential for depreciation. Many real estate income funds allow investors to depreciate their basis in the fund. The non-cash expense lowers the taxable income incurred from fund’s distributions. This may hold significant benefits for investors in high tax states such as California and New York. Investors should speak to their CPA to determine their own potential tax efficiencies from investing in real estate income funds.
Able to Optimize Both Inflationary and Deflationary Market Cycles
Finally, the ability for funds to continue to purchase real estate over time allows investors to optimize both inflationary and deflationary market cycles. An inflationary market will theoretically drive up the value of the fund. In a deflationary cycle, the fund may continue acquiring assets, cost dollar averaging as the market retreats. Funds have the flexibility to pick up these assets at a discount. Cap rates often expand in a deflationary market, which will allow investors to potentially realize higher distributions as they wait for the market to turn around.
Additional Potential Benefits of Real Estate Income Funds
- Passive income and/or distribution potential
- May provide monthly cash flow and/or distributions
- Capital appreciation/equity growth potential
- Tax advantages through depreciation, interest deductions, and the fund itself being able to 1031 exchange proceeds from the sale of one property into another without realizing capital gains.
- Low minimum investment amounts allow for portfolio diversification (typical minimum investment amounts are $25,000-$50,000)
- Professional real estate expertise, including acquisition, financing, property management and asset management
- Elimination of day-to-day management headaches
While it is almost impossible to predict what the economic future will look like, many prudent investors are posturing their portfolios to mitigate risk while optimizing their upside potential no matter which direction the market turns. As more investors learn about the potential benefits of Real Estate Income Funds, their popularity will continue to grow throughout the coming years.
An Example of Typical Real Estate Investment Funds Exclusively Offered by Kay Properties
Net Lease Income Fund 28 LLC
The Cove Multifamily Income Fund 28, LLC (the“Fund”) is a private placement real estate investment/ Regulation D, Rule 506 C offering for accredited investors only. The Fund is targeting unlevered/debt-free multifamily assets for accredited investors. In addition the Fund has targeted monthly distributions with an 8% preferred return.*
*Preferred return is not guaranteed and is subject to available cash flow. For further information about cash flow distributions from operations and capital events, please refer to the Private Placement Memorandum
To acquire and actively manage a diversified portfolio of debt-free multifamily assets across multiple U.S. markets that have value- add potential through physical renovations and/or operational improvements.
Sample Target Markets
- Georgia — Atlanta, Augusta, & Columbus
- Tennessee — Nashville, Memphis, Knoxville, & Chattanooga
- South Carolina — Charleston, Columbia, & Mount Pleasant
- North Carolina — Charlotte, Raleigh-Durham, & Winston-Salem
- Ohio — Cleveland, Columbus, Toledo, & Cinncinati
- Texas — Austin, San Antonio, Dallas-Fort Worth, & Houston
About Kay Properties and www.kpi1031.com
Kay Properties & Investments is a national Delaware Statutory Trust (DST) investment firm. The www.kpi1031.com platform provides access to the marketplace of DSTs from over 25 different sponsor companies, custom DSTs only available to Kay clients, independent advice on DST sponsor companies, full due diligence and vetting on each DST (typically 20-40 DSTs) and a DST secondary market. Kay Properties team members collectively have nearly 400 years of real estate experience, licensed in all 50 states, and have participated in more than $30 Billion of DST 1031 investments.
There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) properties and real estate securities including illiquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. All offerings discussed are Regulation D, Rule 506c offerings. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential distributions, potential returns and potential appreciation are not guaranteed. For an investor to qualify for any type of investment, there are both financial requirements and suitability requirements that must match specific objectives, goals, and risk tolerances. Securities offered through FNEX Capital, member FINRA, SIPC.