The private equity partner is an investor that contributes his or her money to a real estate investment in exchange for an ownership or equity interest in the property. They do not have to deal with the everyday operation of the property or the partnership. These functions are handled by the person who put the transaction together. We will refer to this person as the active investor. Depending on the size of the investment project there may be only one private equity partner or there may be several. When there is more than one equity partner the transaction is referred to as a syndication. In this case the active investor would also be referred to as the syndicater.
In these transactions the private equity partner or partners typically will have an equity (ownership) interest in the property. If the property generates income during the holding period, the equity partner will typically receive income payments. These payments can be structured to be paid monthly, quarterly, annually or at the sale of the property. When the property is sold or refinanced they will receive there proportionate share of that gain. Excellent returns can be obtained in this investment structure. The safety in this transaction is created when the property is purchased.
On the other hand, the private lender, is assuming the role of the banker. They put up the mortgage money and receive a specified rate of return during the time that they are lending the money to the investor. The return that the private lender receives does not have the upside potential of that of the private equity partner but is considered more stable. For the safety of the investment a private lender's investment should never be more than 70% of the value of the property. This means that the property would have to drop 30% in value before they would lose any principal.
The question is would you prefer to have an ownership interest or be a private lender? Which one suits you better?
Article Source: http://EzineArticles.com/2989662