How Private Equity Real Estate Companies Make Money
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- Опубликовано: 16 июн 2024
- How Do Private Equity Real Estate Companies Make Money? // Private equity is one of the most lucrative industries out there, and it’s no surprise. When you’re responsible for managing millions, or even billions of dollars on behalf of investors, and you’re able to leverage other sources of capital like debt, private equity firms can control huge assets with a very small portion of their own capital necessary to do it.
And in real estate, this is no different. But how to real estate private equity firms actually make money?
Well, by the end of this video, you’ll know 5 of the most common ways real estate private equity firms make money, and how this is actually a benefit for both the company, and the investors as well.
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Private equity sounds like a mechanism that extracts the most amount of value from a business, and transfers that wealth to the few general partners.
Everyone loses - the business, the employees, the local consumers, the tax payers.... except for the general partners!
Investors should be cautious about their exposure and be wary of new buys, especially during inflation. Such high yields in this recession is only possible under the supervision of a professional or trusted advisor.
True, initially I wasn't quite impressed with my gains, opposed to my previous performances, I was doing so badly, figured I needed to diversify into better assets, I touched base with a portfolio-advisor and that same year, I pulled a net gain of 550k...that's like 7times more than I average on my own.
I’ve been looking to switch to an advisor for a while now. Any help pointing me to who your advisor is?
Angela Lynn Shilling a highly respected figure in her field. I suggest delving deeper into her credentials, as she possesses extensive experience and serves as a valuable resource for individuals seeking guidance in navigating the financial market.
Thanks for sharing, I just looked her up on the web and I would say she really has an impressive background in investing. I will write her an e-mail shortly.
thanks so much for the simple explanation!! love your videos
thanks started a role on the external reporting end of a REPE firm, this is helpful.
Great channel and info. Thanks
Exactly the contact I’ve been searching for
Excellent! Thank you
@BreakintoCRE great video. Can you touch on how much capital the GP will be expected to commit as a percentage of the deal?
Really good information and very clear and concise. Thank you!
The private equity firm does not "promise" a return to its limited partners. It is a potential upside ROI, and includes risks of failure to achieve the return. The use of the word "promise" is only valid in a loan, not an equity investment.
Hey, Justin --- Great content.
But I just have two questions, though:
With regards to the Acquisition Fees (#1) and Disposition Fees (#4), does the Fund Manager require a Real Estate license to benefit from these fees? Or are they exempt from Real Estate licensing requirements since they are principals of the fund that is making the R/E acquisition and disposition?
And with regards to Asset Management Fees (#2) and Promoted Interest (#5), does the Fund Manager require a Securities license (Series 65) to benefit from these fees? Or are they exempt from Securities licensing requirements?
Thanks.
it would be helpful if you provided examples with arbitrary numbers
Hi May I check where does all the fund admin cost lies? Is it in Management fees? Or it should be separately deducted from the fund Cashflow?
Very Nice video keep posting . Acknowledgement from India.
Thank you!
Really nice video. Since we have some clients from gulf , Can you please make a video on Murabaha role in Real Asset .
How do u find these clients from the gulf?
Great video. As the GP, would it be adversely deemed fair if you included all these fees in your fund or should you try to mitigate your fees as much as possible? For example, would it be frowned upon to charge investors a disposition fee if you still earn a carried interest in the deal as the fund? What combination of these fee structures are most common in the space?
In my experience, funds are created w/ all of the fees mentioned in the video. The only contingency is there might be earn-out caps. In theory if you are hitting all of the promotes / hurdles, the investors should be making enough of a return where they are happy to pay.
@@jacobkardanimoghaddam1852 thank you. Much appreciated for this.
I work in a company that does basically this but with a specific type of business as opposed to real estate.
Nice - I've never worked in general private equity outside of real estate, but from what I understand, the fee structures and waterfall/promote structures are generally pretty similar. Interesting to hear that's the case with your company. Thanks for the comment!
Hey can this still be done on a MUCH smaller scale? Like if I wanted to pool some money together from some friends and purchase a property 100k-500k? Would it still be done the same buying residential housing rather than commercial?
Yes, the same underlying concepts would apply.
How different is disposition fees different from a brokerage? Didn't understand what construction management activities that GPs carry out?
Hey Nikhil, these are additional fees on top of brokerage commissions. Brokerage commissions go to the broker, disposition fees go to the GP. GPs will manage construction of major renovation projects or tenant suite build outs, which can require a lot of time and energy on their part.
Hi Justin i need more info
Are PE firms almost always the General Partner?
I like your videos but am wondering why your business does not come up when I search the better business bureau website nieither Breaking Into CRE nor JBK Enterprises, LLC shows up.
Hi Mary, I'm not registered with the BBB - I haven't felt the annual fees to be necessary for my business. I have over 5,200 reviews on my courses on Udemy with one of the highest ratings on the platform, which I think speaks a lot more to the quality of my paid training than paying for an accreditation. I wasn't aware this was a concern of some of my viewers, though, so thank you for pointing this out!
I am new to the stock market. Every stock that I bought so far, I was out of luck because I bought them when they were expensive. I feel I missed out on all the stock opportunities so far for the tech stocks.I believe having 175K yearly income would be a good investment so I want to plug all my savings into the stock market. I know this sounds a bit dull but I would like to know if I should learn investing or let somebody else (more capable like a FA) do it for me? Please share your thoughts. I am kind of tired of searching for a good stock to buy and losing all the good opportunities..
Keep it simple in the beginning. Buy something, like an index fund, and hold. Educate yourself in the meantime and elevate your risk tolerance over time.
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Hi are these fees charged annually. for e.g. 500m fund 1% management for every year? Or is it just 1% once capital is raised and thats it for the life of the fund?
asset management fees usually yearly
REPE sounds a lot like being a broker
I understand acquisition fees for core deals but do you still charge full acquisition fees on a build from scratch where the development fee is very high?
Yeah there are land transfer costs, legal etc...So you might have Land: 100, Land Transfer Cost 1.5 (1.5%), Legal .25 (.25%) etc... So Land Acquisition = (100 + 1.5 + .25) = 101.75
where is the link for crash courses
Hi Kanwaljit, the link is in the description of the video.
Awesome Video, can you tell me who pays the Acquisition fees? Is it paid by the limited partners? In addition to the amount invested? or is it baked in in advance?
Also, you say “if” you can get the debt, can you tell me more about what it takes to be able to secure good debt? Does a general partner need to have a really high net worth?
Hey Elliott, the acquisition fees are included in the total cost to close the project (usually paid through escrow), so the LPs are paying that fee to the GP, but indirectly through closing (not cutting a direct check to the GP).
Securing debt depends a lot on your experience as a GP. If you're just starting out and buying smaller (
Hey Elliot, the acquisition fees are included in the total cost to close the project (usually paid through escrow), so the LPs are paying that fee to the GP, but indirectly through closing (not cutting a direct check to the GP).
Securing debt depends a lot on your experience as a GP. If you're just starting out and buying smaller (
@@BreakIntoCRE it does! Thank you very much. Do you have any insights on non recourse loans?
@@elliotabel4840 yes - I made a video on this recently: ruclips.net/video/6-BegImGVe8/видео.html
Hey, interested in the free crush course
Hey Anthony, the link for the Crash Course is in the video description.
This was great, I have been researching "group funded real estate" for a while now, and I think this has helped. Have you ever come across - Ponasson Estate Earthman - (search on google ) ? Ive heard some decent things about it and my m8 got cool success with it.