Understanding Hedge Funds in Real Estate | Saint Investment (2024)

A hedge fund is an investment fund that pools capital from accredited or institutional investors and invests in various assets, often with complex strategies. Hedge funds are similar to mutual funds but are generally unregulated, which allows them to use more aggressive investment strategies.

In recent years, hedge funds have become increasingly interested in real estate investing. Hedge fund real estate is a type of investment that pools together money from different investors to purchase properties or REITs. The assets are then managed by professional real estate fund managers, aiming to generate high returns for the investors.

Hedge fund real estate investing is considered a high-risk/high-reward investment and a relatively new phenomenon. It was only made possible by the JOBS Act at the end of 2012.

How Do Hedge Funds Invest In Real Estate?

Hedge funds have the capital and resources to invest in real estate in various ways. They may purchase properties outright, oversee their management, or engage in real estate development projects alone or in partnership with other firms.

Hedge funds may also choose to invest in real estate investment trusts (REITs), which are companies that own and manage income-producing real estate. Depending on the fund’s strategy, it may leverage debt to increase its potential return on investment.

When real estate hedge funds opt to purchase their own properties, they look for underperforming ones and buy them below market value. Unlike hedging on REITs, where the fund will only own stocks of real estate companies, hedging on real estate properties allows fund managers to obtain physical assets they can develop to generate money.

In all cases, hedge funds typically aim for a high rate of return and employ sophisticated investment tactics to achieve their financial goals. However, real estate investing can also pose risks, especially during economic downturns. As with any investment decision, it’s crucial for investors to thoroughly research a hedge fund’s approach before committing their money.

What Are Key Considerations For Investing In Hedge Fund Real Estate?

To be eligible to invest in hedge fund real estate, investors must be accredited, mainly since hedge funds are not regulated by the SEC. There’s also a limit on the number of investors joining a hedge fund.

As a result, the minimum investment for each investor is on the higher end. The minimum investment for hedge fund real estate is usually $1 million, with an average return of around 10-15%. The hedge fund real estate fees are also high, typically 2% of the total investment.

Benefits Of Hedge Fund Real Estate Investing

• High returns and large profits
• Obtain returns either in falling or rising markets
• Managed by top investment managers who have sufficient industry knowledge and expertise
• Ability to customize your investment strategy

Despite the benefits, hedge fund real estate investing is not for the faint of heart. It’s only suitable for investors with a high-risk tolerance since there’s a massive possibility of significant losses if the hedge fund fails.

Real estate hedge funds are illiquid, so your capital is tied up for long periods. Hedge funds last for around five years, with returns appearing starting in the first year.

However, failing in less than a year is also possible. Working with a reputable hedge fund management company is crucial to minimize risks.

A Safer Way To Invest In Real Estate Funds

Hedge fund real estate is only one of the many ways to diversify your real estate investment portfolio. Despite its high returns, it may not be suited for everyone because of the associated high risks.

If you want a more secure way to get high returns on real estate, you can consider investing in real estate funds. These are also pooled funds invested in rental properties like multifamily residential and commercial real estate designed to give you passive monthly income.

Through a real estate syndication process, professional real estate fund managers like Saint Investment Group raise capital from a group of investors to find and vet real estate opportunities. They negotiate the deals and manage the investment to provide passive monthly income streams for the investors.

Learn how to invest in a real estate fund by getting in touch today.