Why Investing in Preferred Equity is a Smart Move

Why Investing in Preferred Equity is a Smart Move

  • Real estate preferred equity investments can yield anywhere from 8% to 15% returns but offer a protected position that diminishes risk and produces regular income that equals or can exceed the expected profits we’re seeing from common equity today.

 

Preferred equity investments are becoming increasingly popular among investors and buyers alike. But what is preferred equity? In a nutshell, it's an investment that offers returns that exceed those of common equity and protects investors against risk. In this blog post, we’ll take a closer look at the benefits of investing in preferred equity, how returns are determined, and the advantages of investing in preferred equity. 

Overview of Preferred Equity Investments

The return on preferred equity investments depends largely on the terms of the agreement between the investor and the issuer. Generally speaking, a regular income stream is paid out to investors at predetermined intervals (i.e., monthly or quarterly). The return may also include additional payments such as dividends or capital appreciation rights.


There are two main types of preferred equity investments; hard preferred equity and soft preferred equity. Hard preferred equity is typically more expensive but offers more protection to investors against risk by providing priority distributions before managers receive their share of profits. Soft preferred equity is cheaper but offers less protection against risk since it does not offer priority distributions to investors before managers receive their share of profits.


Distinguishing Between a Preferred Return and a Preferred Equity Position

It's important to note that there is a difference between a preferred return and a preferred equity position. A preferred return means that you will be guaranteed to receive your money back with interest, whereas with a preferred equity position you are taking on some risk as there is no guarantee that you will get your money back or make any kind of profit from your investment.


Advantages of Investing in Preferred Equity

One of the main advantages of investing in preferred equity is its protected position against risk; since it offers priority distributions before managers receive their share of profits, investors can rest assured knowing they will receive their funds even if the company runs into financial trouble. Additionally, returns on investments today often exceed those offered by common equity which means increased income streams for investors. Furthermore, investors have more flexibility with decision making powers when investing in preferred equity because they can specify certain conditions under which they would like to invest (i.e., specific time frames). Finally, priority distributions payoff to investors before managers receive any profits meaning that they get their money first before anyone else does – regardless if the company succeeds or fails! 


Investing in Preferred Equity has many advantages including its protected position against risk, regular income streams exceeding common returns today, flexibility with decision making powers, and priority distributions paying off only to its investors instead of managers first. With all these benefits taken into account, it’s easy to see why investing in Preferred Equity can be such an attractive option for savvy buyers and analysts looking for secure long-term investments with higher yields than traditional stocks!

Something to Consider

Real estate preferred equity investments are an attractive approach for multifamily investors looking to both grow wealth and preserve it. Unlike common equity, these investments offer protection from risk with a steady salary over the lifetime of the project – often yielding anywhere from 8% to 15% returns. Moreover, the cash flow expectation associated with preferred equity is equal to or even greater than what can expected with common equity investment today, further increasing its appeal as a sound and profitable business choice.