Real estate is considered as one of the best investment sectors. It’s because the property values usually stay stable for long and you can earn a good return on your investment. If the country is economically strong, you’re likely to earn big profits with time.
Preferred equity is another way of investing in real estate sector. You may have heard of the term ‘preferred’ in the stock market where investors are allowed to buy preferred shares of the stock. Although these stocks are relatively expensive, they offer a good ROI.
When it comes to preferred equity in real estate, you can go for a project that has a low priority in terms of mortgage debt but possesses a higher priority in terms of the equity of project sponsor.
The project financers usually offer a loan within the range of 60-70% of the original commercial property’s value. This way, they’re able to earn profits without risking their investment. Therefore, most mortgage debts are usually funded by the investors. However, when investors are willing to invest even more funds, preferred equity comes into play.
Why Investors Go for a Preferred Equity
Preferred equity is more expensive than mortgage debts or senior debt. Although it offers more revenue, the investment encounters more risks. If the property value suddenly drops, the investors can lose their entire investment in no time. But the probability of higher profits attracts investors.
Also, preferred equity holds capital repayment priority. It depicts that even if the commercial property is unable to generate the expected revenue, you can claim your original investment once the property is sold. It reduces the risks to your investment.
Be it real estate or any other investment sectors, you can’t earn a good return unless you’re ready to take risks. By opting for the preferred equity, you can claim benefits from property appreciation, get tax deductions and earn rental income benefits.
A majority of preferred equity investors choose a fixed return on their investment as well as of their investment. It aids them in protecting their original investment and increasing their profit.
A preferred equity usually involves a fixed term of 2 to 3 years. The sponsor can upgrade the interest rate after this term on the basis of the unreturned capital.
How to Invest in a Preferred Equity
Investing in a preferred equity can help you earn a good income over time without risking your savings. However, it’s recommended to get in touch with a professional commercial property advisory service to make the most of the investment opportunity. You can visit http://www.stamfordcapital.com.au/ to know more about preferred equity.
Stamford Capital is a reliable name when it comes to financial advisory services. They can guide you about the most suitable real estate projects that will work for you. Since they have contacts in the industry, they can suggest investment opportunities on the basis of your financial needs and goals.
All in all, a preferred equity is a feasible way of investing in commercial real estate. With professional guidance of Stamford Capital Australia, you can further increase the return on your investment.