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. Moreover, traditional investment instruments like stocks and bonds also do not look very attractive due to their poor yields. Therefore, 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.
An example of a typical real estate investment fund offered exclusively by Kay Properties
Net Rental Income Fund 18 LLC: Focused on acquiring, owning, and actively managing a portfolio of unique, long-term, NNN-leasehold, revenue-generating tenants operating in industrial, medical, and retail spaces in select U.S. markets.
This real estate income fund targets an 8%* preferred return for investors with monthly distributions generated through corporate-guaranteed leases. The offer size of this fund is $50,000,000 with a minimum investment of $50,000.
Examples of properties the funds are seeking to acquire include those leased to essential recession-proof businesses that have remained open and paid rent during the pandemic, such as: Amazon, FedEx, Davita Kidney Care, Frito Lay, Walgreens, UPS, CVS, Coca-Cola, In-N-Out Burger and 7 Eleven.
*Preferred return is not guaranteed and is subject to free cash flow. Past performance is not indicative of future results. For more information on cash flow distributions from capital transactions and events, please refer to the private placement memorandum.
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
- Fiscal advantages
- Typically low minimum investment amounts ($25,000 – $50,000)
- Professional wealth management
- Eliminate the headaches of day-to-day management
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.
Kay Properties 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 over 115 years of real estate experience, are licensed in all 50 states, and have participated in over $21 billion in DST 1031 investments.
This document does not constitute an offer to sell or a solicitation of an offer to buy any securities. Such offers can only be made through the Confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying particular attention to the risk section before investing. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes, so you should consult your tax or legal advisor for more details regarding your situation. There are significant risks associated with investing in real estate securities, including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long holding periods. There is a risk of losing all the capital invested. Past performance is not indicative of future results. Potential cash flows, potential returns and potential appreciation are not guaranteed.
Nothing contained on this website constitutes tax, legal, insurance or investment advice, nor does it constitute a solicitation or offer to buy or sell securities or other financial instruments. Securities offered by Growth Capital Servicesmember FINRA, SIPCSupervisory Jurisdiction Office located at 2093 Philadelphia Pike Suite 4196 Claymont, DE 19703.