The Passive Income Quandary

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Which passive investment camp do you fall under?

Are you in the camp seeking passive income to increase your retirement savings with safe consistent returns? Or do you fall under the camp seeking to build wealth through a compounding passive income stream?

No matter which camp you fall under, no doubt you’ve considered both stocks and real estate as passive investment options and the reason you’ve sought out passive income opportunities is because you either don’t have the time or feel like you don’t possess the expertise to actively trade stocks or actively invest in real estate.

For passive income, the most common vehicle in the stock market is through mutual funds. And for real estate, although many passive income options are available, many of these options like REITs are tied to the stock market so for purposes of this discussion, we will stick to the non-stock market passive investment options.

And among the most popular of these options is the investment in a private real estate investment fund or syndication. So, when faced with the passive investment options between mutual funds and a private real estate fund, what are the most important factors to consider? Besides return as being the most obvious consideration in choosing between two different investment options, there are other factors you should consider that you may not have thought about. Here we present a summary of the considerations.

Return

The performance of the average mutual fund is likely to mirror the S&P 500. The S&P 500 Index’s average annual return over the past 20 years is approximately 8.6%. Average annual returns from commercial real estate during the same period averaged 9.5%. Residential and diversified real estate investments averaged 10.6%. Assuming fees being equal between mutual funds and private real estate funds, the inference is that average returns from passive real estate investments exceed those of mutual funds. In addition to the advantage in average annual return, passive real estate investments hold additional advantages, not on the top of investors’ minds.[/vc_column_text][gem_quote style=”4″ no_paddings=”1″]Passive income generated from productive assets should continue to produce even in bad times.[/gem_quote][vc_column_text]

Recession Hedge

As a hedge against bad times, the advantage of passive real estate investments is clear. In a recession, stocks correlate with the broader economy. As the economy goes, so too does the value of stocks and logically, the value of mutual funds. Real estate investments, as a class of alternative investments, are by nature uncorrelated to the broader market. Passive income generated from productive assets should continue to produce even in bad times. Income generating real estate will not suddenly cease providing rental income and some classes of real estate have even proven to actually thrive in a recession due to the constrained supply of affordable housing currently existing in the market.

Investment Secured by Tangible Asset

Mutual funds and stocks, in general, are not tangible assets. When the value of stocks plunge, there is no tangible asset backing up the stocks to salvage value from. With passive real estate investments like debt or equity investments in a private real estate fund, your investment is often secured by a physical asset. When all is lost, there is always the value of the underlying value of the real estate that can be liquidated to salvage your investment. With stocks, there is no underlying tangible asset, so when all is lost, there is nothing left to salvage.

With stocks, there is no added benefit from appreciation like an investment in a tangible asset like rental real estate. When you combine the security aspects along with the appreciation benefits of a tangible asset like real estate, there’s no comparison for the passive investor between real estate and stocks. If this piece of information makes you more inclined towards real estate, you could consult professionals like Michael Teys who would be able to give you a fair enough idea about how to start your journey in strata and related fields of real estate!

Control

With mutual funds, you are at the mercy of faceless fund managers whose investment strategies are at their sole discretion. With private real estate funds, you maintain control of how your funds are invested by choosing who to invest with. If you prefer to invest in commercial real estate, then you can choose to invest in a commercial real estate fund.

Oftentimes, with special purpose funds, you can invest in specific properties like a specific professional tower or apartment complex. With some funds, you can also maintain somewhat control over your rate of return as many private real estate funds offer preferred annual returns often ranging from 6-8%. And with private real estate funds, you are not at the mercy of faceless managers. With most private real estate funds, the fund sponsors are often accessible from introduction through the life of the fund.

For the investor looking to build wealth through passive investments, the choice between passive real estate investments and stock investments is clear. For average returns, security, control and as a hedge against bad times, there is no comparison.

However, as with any investment, it’s important to do your due diligence as just as there are poorly managed mutual funds there are also poorly manage private real estate funds. But, all things being equal, the choice is clear.

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DISCLAIMER

This is neither an offer to sell nor a solicitation of an offer to buy the securities described herein.

THE OFFERING IS MADE ONLY BY THE PRIVATE PLACEMENT MEMORANDUM. THIS MATERIAL MUST BE READ IN CONJUNCTION WITH THE PRIVATE PLACEMENT MEMORANDUM IN ORDER TO UNDERSTAND FULLY ALL OF THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES ASSOCIATED WITH AN INVESTMENT IN THE SECURITIES TO WHICH IT RELATES AND MUST NOT BE RELIED UPON TO MAKE AN INVESTMENT DECISION.

The offering of securities described herein will not be registered under the Securities Act of 1933 (the “Securities Act”) or the securities laws of any state and the securities are being offered and sold in reliance on exemptions from the registration requirements of the Securities Act and such laws. Neither the Securities and Exchange Commission nor any other federal or state agency has passed upon the merits of or given their approval to the offering of the securities, the terms of the offering or the accuracy or completeness of the offering materials. The offering of securities is being made only to Accredited Investors, as defined in Rule 501(a) of Regulation D of the Securities Act. An investment in the securities is highly speculative and involves substantial investment and tax risks. All prospective investors must review the Private Placement Memorandum in its entirety, including the section entitled “RISK FACTORS” before investing.

An investment in Four Peaks Capital Partners, LLC is highly speculative and involves substantial risks, including, but not limited to: (1) Four Peaks Capital Partners, LLC success depends upon the performance of the Manager in managing Four Peaks Capital Partners, LLC and its investments, including decisions involving investment of Four Peaks Capital Partners, LLC’s capital and the acquisition and disposition of properties and there is no guarantee Four Peaks Capital Partners, LLC will raise enough capital to perform its investment objectives; (2) There can be no assurance that a prospective investor will receive any return on investment in Four Peaks Capital Partners, LLC and/or realize any profit on a prospective investor’s investment in Four Peaks Capital Partners, LLC and a prospective investor could lose all or a substantial portion of its investment; (3) The Manager has limited or no net worth and there can be no assurance that the Manager will have sufficient funds to meet its obligations to Four Peaks Capital Partners, LLC or to otherwise financially support Four Peaks Capital Partners, LLC; (4) The Class A members and Class B members have no power to take part in the management of Four Peaks Capital Partners, LLC and have limited voting rights and will not have the opportunity to evaluate or approve any of Four Peaks Capital Partners, LLC’s investments; (5) The Class A Interests and Class B Interests will be illiquid, and the transferability of the Class A Interests and the Class B Interests will be substantially restricted; (6) Four Peaks Capital Partners, LLC may not have the cash flow necessary to make distributions to its members; (7) Four Peaks Capital Partners, LLC will not diversify its investments and, therefore, the success of Four Peaks Capital Partners, LLC will be dependent upon the success of the properties; (8) There are substantial risks associated with real-estate investments and ownership of storage facilities and mobile home parks; (9) There are various potential conflicts of interest among the Manager and its Affiliates and their principals.
Investors must read and carefully consider the discussion set forth under the section entitled “RISK FACTORS” in the Private Placement Memorandum for a complete discussion of these and other risks pertaining to this investment.

These projections are speculative and based on specific assumptions, which, if incorrect, would cause the actual returns to differ materially from the projected returns. You should review the entirety of the assumptions and risks set forth in the Private Placement Memorandum.

Any underlying assumptions and any forward-looking statements herein may not be accurate, the projections herein shown may not occur, and actual results could differ materially due to risks and uncertainties that are beyond the Company’s ability to control or accurately predict. To the extent, the information in this communication conflicts with the information in the Private Placement Memorandum, the information in the Private Placement Memorandum shall govern.

The securities offered are an illiquid investment and involve a high degree of risk; Investors should be able to bear the loss of some or all of their investment. Investors should read and understand all of the risks and the entire Private Placement Memorandum before making a decision to invest. Past performance is no indication of future results and there can be no assurance that Four Peaks Capital Partners, LLC will be able to execute the investment objectives for the Properties or the Offering.

This material is for general information purposes only and does not constitute legal, tax, investment or other professional advice on any subject matter. Information provided is not all-inclusive and should not be relied upon as being all-inclusive.
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