What Are the Benefits of Fund Investing?

Real estate investing provides a variety of investment options, each offering distinct advantages and drawbacks. The most common forms of real estate investment include: 

• Direct purchase of single family or small multifamily properties  
• Syndications  
• Publicly traded REITs  
• Real Estate Funds  

Let’s take a quick look at some of the pros and cons of each real estate investment vehicle:  

Real Estate Funds 

While each of these real estate investment vehicles could be evaluated further, for the sake of brevity, I will focus on the benefits of closed-end private equity real estate funds. After two decades of personal experience in real estate, investing through the real estate fund structure has become my preferred investment vehicle for the following advantages: 

1. Diversification  

Real estate funds provide immediate diversification across a multitude of factors including exposure to multiple assets, asset types, classes, and geography, significantly mitigating risk. In fact, a study done by Ashcroft Capital has shown that investing in real estate funds carries 2.7 times less risk compared to investing directly or through a syndication. [2]

2. Passive Investment  

Fund investing allows limited partners to participate in large real estate investments passively. All acquisitions, development, sourcing of debt, asset management, property management, dispositions, etc., are the sole responsibility of the general partners. With no other time required other than their personal due diligence, funding capital calls, and providing a K1 to their tax professional, fund investing requires a very minimal time commitment from investors.  

3. Limited Liability  

Unlike direct real estate investing, where the investor is often required to personally guarantee the debt, funds never require personal guarantees from investors which significantly reduces liability risks for investors. Aside from capital invested, limited partners carry no additional risk of loss.

4. Lower Investment Minimums  

Real estate Funds generally carry lower investment minimums than direct real estate investing, helping remove the “barrier of interest” and allowing access to assets that otherwise may be too large. Additionally, funds often provide a capital call schedule allowing investors to contribute capital over time versus fully funding their commitment upfront (as is usual for direct purchases and syndications). 

 5. Shared Team Expertise 

Fund investing allows investors to align themselves with seasoned investment managers with experienced teams who make it their full-time job to construct and manage the funds portfolio. This history of experience becomes vital in times of economic uncertainty when volatile markets create unexpected roadblocks difficult for individual investors to overcome while experienced teams have more resources, partner relationships, and the knowledge to anticipate and prepare for these challenges.   

6. Same Tax Benefits as Direct Ownership  

Real estate funds can pass the tax benefits through to the limited partners in the same way as directly owned properties. (While not standard practice, Axia Partners passes 100% of the tax benefits through to our limited partners.)

7. Greater GP Alignment   

General partners participate in profits only after all limited partners have not only received 100% of their initial capital back but also achieved the set preferred return. This structure creates a strong alignment between the general partners and the limited partners, with the sponsor only benefiting after the investors have already won. This approach ensures that fund managers must be highly selective when choosing assets to include in the portfolio.  

At Axia Partners we urge all investors to evaluate their investment decisions from the context of their overall investment portfolio and make decisions that align with their personal investment objectives and goals. While this is in no way financial advice, I’ll wrap up here with my opinion in summary:

If you have a small amount of investable capital, need immediate access to your capital, and are OK with historically lower returns, consider REITs.

If you are willing to take on a more active role with your time, have enough capital for a large down payment, and are comfortable guaranteeing the debt, consider direct ownership.

If you want to be completely passive, are an accredited investor, and prefer to know the exact asset you’re investing in, consider syndications.

If you want to be completely passive, are an accredited investor, prefer diversification through ownership in multiple assets, and prioritize reducing risk of loss, consider investing in funds.

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[1] CoStar Advisory Services: YTD Change: Commercial Real Estate, S&P 500, and REITs

[2] Ashcroft Capital’s simulated model of the rewards of diversification by investing in a fund versus a single property ran 100,000 based on their historical returns of their syndications versus seven properties pooled together. Under these parameters, the results show that a single property investment has a standard deviation that is 2.7 times greater than investing in a fund.

In the world of real estate investing, understanding the importance of risk and return is crucial for success. Dave Allred, an experienced investor and business owner, highlights this concept on Justin Donald’s podcast The Lifestyle Investor. With years of experience in sales leadership and real estate, Allred has built an impressive portfolio and achieved financial freedom at the young age of 36.

Allred’s journey began in a small town in Utah, where he grew up in a very low-income, blue-collar home. Despite the lack of financial education and resources, he made a commitment as a teenager to uplevel his life and do whatever it took to succeed. This determination led him to a door-to-door sales job selling security systems in Chicago, where he faced enormous challenges and failures.

However, Allred’s persistence and willingness to learn from his experiences eventually paid off. He sold 120 accounts in his first summer, earning $31,000 which was more than anyone in his family had ever earned.

He then went on to manage 121 teams across 41 states as a regional Vice President for the company. During this time, he also began investing in real estate as a side hustle, starting with a 4-plex and gradually scaling his portfolio to include ownership in over 1,000 rental units.

Understanding Risk and Return for Real Estate Investments

In real estate investments, the concept of risk-return refers to the relationship between the potential risks of loss involved in an investment and the expected returns from that investment. This relationship is fundamental in making investment decisions, as it helps investors weigh the potential rewards against the inherent risks.

Let’s take a look at some advice Allred has for those stepping into the world of real estate investing.

1. Have a Growth Mindset and Be Curious

One of the key lessons Allred learned early on was the importance of having a growth mindset and always being curious. He emphasizes that mindset is everything and that limiting beliefs can hold people back from reaching their full potential.

Different investors have different financial goals, whether it’s steady rental income, long-term capital growth, capital preservation, tax benefits, or a combination. Understanding risk and return helps these investors tailor their investment strategies to meet these specific objectives, ensuring a more targeted and effective approach. By maintaining a commitment to being a lifelong student and operating with humble confidence, Allred has been able to continuously expand his knowledge and take on bigger challenges.

2. Being Intentional and Clearly Defining Outcomes Goes a Long Way

When it comes to real estate investing, Allred stresses the importance of having intentionality and clarity. He developed a system called “Lifestyle Design” to help him define his goals and reverse engineer the process of achieving true financial freedom.

By calculating his annual cost of living, current passive income, and the gap between the two, he set a specific target of acquiring 40 rental properties by age 40. Once he achieved this goal at age 36, he then upped the goal to ownership in 1,000 rental properties, which he was able to achieve prior to turning 41.

This approach highlights the importance of understanding risk and return in real estate investments. Having a clear grasp of these concepts can foster greater confidence among investors, as it ensures their decisions are based on sound financial principles and clearly defined outcomes.

3. Make Purposeful Investments

In addition to setting financial goals, Allred emphasizes the importance of tying purpose to money. He believes that the more emotion and passion you put behind your financial aspirations, the easier it becomes to attract money and be a good steward of that capital. By focusing on how his investments can create a quality life for his family and give back to others, Allred has been able to stay motivated and driven.

This purposeful approach is closely tied to understanding risk and return. By clearly defining his goals and the emotional drivers behind them, Allred can make more informed investment decisions that align with his values. This helps manage risks more effectively, ensuring that each investment not only offers a good return but also supports his broader life objectives.

Balancing Risk and Return: The Key to Purpose-Driven Financial Success

Dave Allred’s journey from a small-town upbringing to achieving financial freedom through real estate investing is a testament to the power of persistence, curiosity, and intentionality. By maintaining a growth mindset, setting specific goals, and tying purpose to money, Allred has been able to build a successful business and create true freedom for himself and others.

Central to his success is his understanding of risk and return. By carefully balancing the potential risks of his investments with the expected returns, Allred ensures that each decision supports his financial goals and lifestyle freedom goals. This strategic approach not only maximizes his freedom but also aligns with his purpose, driving him to achieve more while managing risks effectively.

If you’re ready to change your life, it might be tempting to simply jump right in without a clear blueprint in mind. However, setting goals and organizing your life is one of the first steps to changing your situation and reaching for success. Dave Allred is a real estate investor who started his journey knowing where he wanted to go, which helped him achieve the extreme success he has today.

Dave Allred started his adult life knowing little about money and how to manage it. He began his career doing door-to-door sales before moving to manage 100 teams in 41 states with the world’s largest smart home security company. However, he knew he wanted to achieve more; he just had to figure out how to accomplish it. So he started out by outlining his goals for real estate investment. At the age of 30, he set a goal of owning 40 rental doors by the age of 40. “I really internalized this goal and made it my mission to achieve it,” Allred says. “I lived by it and thought of it as one of the most important things in my life.” He reached this target by 36, and decided to set the goal of 1,000 rental doors by age 40. Through sheer focus, he’s already achieved it, and now plans to own 10,000 rental doors by the age of 45. “It’s all because I knew what I wanted and how to set realistic goals.”

In order to achieve success like him, Allred recommends a “lifestyle design,” which is a blueprint for exactly what you want in your life. You can outline your core values, mission statement, non-negotiables, and other key areas. This will help you prioritize your time and know what you’re working toward. “Many people spend more time planning a vacation than they do planning their life,” he said. “You need clear-cut goals before embarking on a journey. Without them, you’ll find yourself floundering, unable to really accomplish what you want.”

To do this, you should write down your goals for the next year, five years, and 10 years. Many people overestimate what they can do in a year, but underestimate what they can do in five or 10 years. “Writing down your goals is one of the most important things. Studies have proved that simply writing them down improves your accountability and makes it much more likely that you’ll succeed.” You can track your progress along the way and change the steps you’re taking to achieve your goals. It’s normal to get off track and have to change your path; just work to focus and find your way back. Allred also recommends having fun while you make your goals. “If you’re not enjoying moving toward a goal, maybe it’s not the right one for you. Pay attention to how you feel every day. If it’s a slog, you won’t achieve your dreams and won’t be happy with your life!”

Dave Allred loves setting goals for himself before he starts a new project. He thinks that you’ll be able to find similar success if you too follow the same pattern.

The perils of social media are well known, from the fear that Instagram is creating unrealistic body standards to the dangers of cyberbullying. While these fears are based in fact, the positive effect that social media can have on our lives is often overlooked. Social media has greatly evolved since it first emerged as a tool for making connections and building friendships; it is now considered to be a formative part of modern life. Financial expert and advisor Dave Allred is familiar with demonstrating people how they can reap financial rewards and see the value in every situation. Here, Allred shares his insights on how social media can be used to add untold value to people’s lives.

According to Dave Allred, social media has brought value to people’s lives in two very definitive ways: by providing access to information and by allowing them to network and create connections. Using the world of finance and investment as an example, Allred states that within the Internet age, people’s lives have been enhanced through access to information on stocks, trading, and investment, thanks to Facebook Groups that share vital tips on how to build wealth. He adds that this greater access to knowledge through social media has brought concepts and ideas to the attention of people who otherwise wouldn’t have had access to this knowledge and information. 

Networking, Allred says, is one of the greatest advancements that social media has brought to modern life, as it allows people of any background or social standing to connect without barriers. Expanding on this insight, he says, “Social media platforms are launch pads for any career that a person would like to pursue. Through the power of social media, you can reach out to leaders of any industry, engage with them and benefit from their knowledge.” Allred explains that the concept of using social media to add genuine value to people’s lives has grown with the rising popularity of personalized branding and ethical marketing. Expanding on this, he says, “Ethical marketing puts an emphasis on honesty and authenticity, and brands using social media today lean into these traits and seek to share content that can render genuine value to people’s lives.”

Allred began his professional life within the sales industry, though he has always had an interest in the world of finance and investment. The leadership skills that he developed while overseeing over a hundred sales teams across 40 states laid the foundation for his career as a successful financial advisor. Allred brought his collective experience and expertise in both leadership and finances to Foresight Wealth Management, a company that provides its clients with support in every area of financial planning and investment management. 

Social media is no longer just a tool that can be used to connect with others. Dave Allred believes that the power of social media to add value to people’s lives is now greater than anyone could have ever predicted. 

Dave Allred is a textbook example of a people person. He is also a self-described lifelong student who pursues knowledge and personal development. His natural skills were on full display as he excelled in the challenging job of door-to-door sales. Today, Allred applies his impressive interpersonal aptitude to real estate, and has just come off a record-breaking year.

To achieve this success during a global pandemic, Dave Allred took an unconventional approach that yielded stellar results. The years of door-to-door sales laid the foundation for his mantra: relationships are the new currency. While networking is heralded as one of the most important facets of any business, Allred has realized it can seem forced or even come across as a gimmick in some situations. Instead, he taps into his uncanny people skills to build authentic and relevant relationships. 

Allred defines networking as prioritizing the relationships that he calls the “new currency in business.” Like any relationship, these take time and effort to cultivate. Allred has learned how to conquer tough situations by learning how to be comfortable even in the most uncomfortable of situations. He sees this as an opportunity to truly get to know a person and secure rather than shy away from a potentially valuable relationship. It also keeps Allred ahead of the competition and provides an effective tool for overcoming challenges, even one as formidable as COVID-19. It is these very challenges which make strong relationships more important than ever.

Allred has seen firsthand how relationships translate to currency. His best deals and partnerships have stemmed from close friends and his social networks. The key word is close, and Allred has learned how to duplicate this closeness across virtual platforms. The pandemic limited personal interaction, but Allred was more than up to the challenge of cultivating strong relationships through social media. Viewing this as yet another opportunity to connect with people on a meaningful level, Allred uses Facebook Groups and Instagram to share purpose-driven content he hopes will add value to people’s lives.

Allred is inspired by numerous people on social media. He follows those he respects and deems social media platforms powerful tools for not just communication but also for collaboration. There is a strong sense of community where members can find motivation in each other’s success and learn how to translate such achievements into their own organizations. Here again, we see the real-world application of Allred’s belief that relationships are the new business currency.

Financial gain, and the freedom it offers, is an effective motivator but Allred considers it a byproduct of the things which matter the most to him: memories, relationships, and experiences. To Allred, the most precious of resources is not money but time – specifically, time that is devoted to fulfilling the lives of others and in turn finding self-fulfillment, which is indeed priceless. Allred devotes a great amount of time to building relationships that transcend currency by adding purpose and value to people’s lives, thus allowing him to enjoy his own to its fullest.