What exactly is Private Equity and how does it work? Private equity is an investment in rental properties funded by private individuals in lieu of retail (bank) financing.Private Equity Investors who participate in private equity receive double digit returns on their investment all secured by real estate.

Private equity is an important yet sometimes quiet participant in the real estate environment, helping to spur growth in the economy by acquiring and rehabilitating real estate that traditional lenders will not finance primarily due to the current physical condition of the property. Private individuals can provide all or part of the funds needed for any acquisition. In this manner, individuals are secured by the subject property and in a first lien position.

For example, a 12-unit apartment building has been in a state of disrepair for quite some time. The current owners do not have the funds needed to make the necessary repairs. Tenants do not stay in the unit due to the condition of the building and vacancy rates are high and the property does not cash flow. In turn, the subject property drives down the property values of similar properties in the area. A bank will not place a loan on the building due to its current condition. Without private equity, the building would ultimately be torn down. Instead, private equity is used to acquire and rehabilitate the structure and once completed the building can be rented at fair market rental rates or sold and financed with any traditional lender.