By Steve Haskell, Vice President, Kay Properties and Investments, LLC
The recent fluctuation in the US stock market, many investors are looking for more conservative and less volatile investments. This is 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 firm also has an excellent reputation for working with nationally recognized real estate sponsors to find and structure All-Cash/Debt- Free Real Estate Income Fund 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 set up on behalf of a group of investors. There are literally tens of thousands of different types of investment funds, including stock funds, bond funds, money market funds, mutual funds, and hedge funds. While direct ownership of real estate has been a popular investment for centuries, many investors have recently started investing in real estate by participating in a fund.
A real estate income fund is a specific subset of funds that focuses exclusively on investing in potentially income-generating real estate. Real estate income funds offer another entry point for those looking to invest in large commercial or multi-family real estate portfolios. Real estate income funds are particularly attractive to retail investors who want to own institutional-grade real estate that would normally be out of their reach. A real estate income fund pools capital from many investors, and then the fund sponsor oversees all fund activities, including due diligence, underwriting, and property management. Investing in a real estate income fund is a great way to potentially generate passive income, access institutional-grade assets, and avoid direct ownership liabilities.
Three Distinct Benefits of Investing in a Real Estate Income Fund
The ability to diversify real estate funds has attracted cautious investors who want to avoid the concentration risk that often accompanies the purchase of real estate. Typically, real estate investing requires a large down payment in order to secure a loan on 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 in a highly diversified portfolio, thereby mitigating risk through diversification. Not only do the funds allow investors to diversify into different properties across the country, but investors can also diversify their investment by asset type and tenants. Funds may hold multi-family apartments, net leasehold commercial, medical, industrial assets, etc. Asset types can have varying market cycles. Diversifying your investment across asset types and geography can potentially insulate your investment from market volatility.
*Diversification does not guarantee profits or protect against losses.
An added benefit of 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 reduces the taxable income generated by fund distributions. This can have significant advantages 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 by investing in real estate income funds.
Able to optimize inflationary and deflationary market cycles
Finally, the ability of funds to continue buying real estate over time allows investors to optimize for inflationary and deflationary market cycles. An inflationary market will theoretically increase the value of the fund. In a deflationary cycle, the fund may continue to acquire assets, the cost of which averages out as the market declines. The funds have the option of acquiring these assets at a reduced price. Cap rates often rise in a deflationary market, which will allow investors to potentially realize higher distributions while they wait for the market to recover.
Additional Potential Benefits of Real Estate Income Funds
- Passive income and/or distribution potential
- May provide monthly cash flow and/or distributions
- Capital Appreciation/Growth Potential of Shares
- Tax benefits 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 to $50,000)
- Professional real estate expertise, including acquisition, financing, property management and asset management
- Eliminate daily management headaches
While it’s nearly impossible to predict what the economic future will look like, many prudent investors adjust their portfolios to mitigate risk while maximizing their upside potential no matter which direction the market is moving. As more and more investors discover the potential benefits of real estate income funds, their popularity will continue to grow over the next few years.
An example of a typical real estate investment fund offered exclusively by Kay Properties
Net Rental 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 only to accredited investors. The Fund targets non-leveraged/debt-free multi-family assets for accredited investors. In addition, the Fund has targeted monthly distributions with a preferred yield of 8%.*
*Preferred return is not guaranteed and is subject to free cash flow. For more information on cash flow distributions from capital transactions and events, please refer to the private placement memorandum
Acquire and actively manage a diversified portfolio of debt-free multi-family assets in multiple US markets that have the potential to add value through physical renovations and/or operational improvements.
Examples of target markets
- Georgia – Atlanta, Augusta and Columbus
- Tennessee: Nashville, Memphis, Knoxville and Chattanooga
- South Carolina – Charleston, Columbia and Mount Pleasant
- North Carolina – Charlotte, Raleigh-Durham and Winston-Salem
- Ohio – Cleveland, Columbus, Toledo and Cinncinati
- Texas – Austin, San Antonio, Dallas-Fort Worth and Houston
About Kay Properties and www.kpi1031.com
Kay Properties & Investments is a national investment company of the Delaware Statutory Trust (DST). The www.kpi1031.com platform provides market access to DSTs from over 25 different corporate sponsors, custom DSTs only available to Kay clients, independent advice on corporate sponsor DSTs, comprehensive due diligence and verification of each DST (usually 20 to 40 DST) and an aftermarket DST. Members of the Kay Properties team collectively have nearly 400 years of real estate experience, are licensed in all 50 states, and have been involved in over $30 billion in DST 1031 investments.
There are significant 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, risk of new market supplies and declining rental rates, general risks of owning/operating commercial and multi-family properties, short term leases associated with multi-family properties, financing risks, potential negative tax consequences, general economic risks, development risks and long holding periods. All offers discussed are Regulation D, Rule 506c offers. There is a risk of losing all the capital invested. Past performance is not indicative of future results. Potential distributions, potential returns and potential appreciation are not guaranteed. For an investor to be eligible for any type of investment, there are both financial requirements and suitability requirements that must match specific objectives, goals and risk tolerances. Securities offered by FNEX Capital, member FINRA, SIPC.