Investing in Senior Housing: Is Private Equity or Crowdfunding a Better Bet? - Healthcare Business Today (2022)

ByDan Brewer

If you’ve been on social media lately, you’ve likely seen some ads popping up regarding crowdfunding opportunities in real estate. In fact, I’ve even noticed some confusion surrounding those ads in recent weeks from brokers and investors alike, regarding how real estate crowd funding differs from traditional private equity funds. While the two share some similarities, they do vary in numerous ways. If you’re interested in making an investment in senior housing, consider the following before signing on the dotted—or digital—line.

Private Equity and Crowdfunding: Apples to Apples

Let’s get started by defining what private equity and crowdfunding are. Private equity funds have been around since the 1940s. When it comes to real estate, they involve pooling money from numerous sources and investing it in one or many properties. The properties are selected by a fund manager, making this a passive investment opportunity. The right fund manager will seek to invest and diversify the fund as well as possible for the sake of all investors involved.

Crowdfunding similarly allows investors to pool their dollars—usually via online platforms—to make larger investments in real estate and other initiatives. Crowdfunding became popular in real estate with the Jumpstart Our Business Startups (JOBS) Act of 2012, which allowed primarily accredited investors to access real estate through crowd-funding and peer-to-peer lending. Although crowdfunding is technically considered a passive investment, that term comes with an asterisk, as the responsibility of researching and selecting investment properties falls directly on the investor. In that sense, investors must be a bit more savvy—or at least passionate about the industry—in order to be successful.

When it comes to investing in senior housing, both private equity funds and crowdfunding share a few major commonalities. First, they both qualify as “alternative investments” meaning they fall outside the realm of traditional investments like stocks, bonds, and currency. They include things like equity funds, venture capital, and real estate. Alternative investments have been growing steadily in today’s low-yield market. In fact, they’ve grown at twice the rate of non-alternative investments since 2005. The Yale Endowment, for instance, credits its focus on alternative investments for making it a top-performer in the university endowment world (New York Times).

For those interested in investing in senior housing, this means that while alternative investments may involve higher risks than traditional investments, they may also offer higher returns. This is a positive for those who have a higher tolerance for risk in their portfolios.

(Video) The Real Estate Crowdfunding Show - Ep. 433 w/ Daniel Cocca (Alpha Investing)

Second, both private equity funds and crowd-funding sources that invest in senior housing could be said to fall into the “impact investing” sector. This means the money invested aims to do far more than create positive returns for its investors. It also aims to have a positive impact in the community—in this instance, creating sale, quality housing for the country’s growing senior population.

Lastly, as of 2015, both private equity funds and crowdfunding platforms allow investments from both accredited and non-accredited investors, although this will vary by specific fund offering. Indeed, the JOBS Act of 2012 also protects smaller private equity funds in the same way it does crowdfunding platforms—so on the face of things, both seem fairly similar.

The largest difference between private equity funds and crowdfunding investments is the size of the minimum investment itself. While private equity funds generally start at minimums of $50,000+, those in the crowdfunding sector start as low as $1,000—a bonus for those with less capital to invest.

Which is Right for Me?
If you are interested in investing in senior housing, both private equity funds and crowdfunding sources could help you achieve your goal, while also helping to house our booming senior population. But given the differences in size and structure, the following are a few things to think about in deciding which avenue is right for you:

  • How Much Do You Want to Invest? By far, this will be the most decisive point for most investors. Crowdfunding opportunities work especially well for those who want to invest but lack a large amount of liquid capital. Private equity funds, on the other hand, generally require a larger investment up-front.
  • How Involved Do You Want to Be? Private equity is a truly passive investment opportunity. Although investors need to do their due diligence to select a fund manager they trust, they do not need to worry about researching market opportunities or selecting the right investment. Crowdfunding eliminates the middle man, meaning investors create their own portfolios—playing a much larger role in value creation. Depending on how much involvement one wants to have in their investment opportunities, this will also be a large factor in determining which investment works best for you.
  • Are You Flexible? When it comes to crowdfunding, investors need to understand that the investment will not go forward until the entire fund is fulfilled. For instance, if the investment opportunity is set at $20 million, the investment will not be made until that mark is met. In terms of private equity, that isn’t always the case. The Fund Manager may set the fund limit at $20 million but will be making investments throughout the fund fulfillment phase in order to ensure returns are met. The manager can also close the fund at any time, for instance to capitalize on certain market conditions.
  • Do You Know How to Diversify Your Portfolio? Diversity is key when building a strong financial portfolio. When it comes to private equity, investors will have a fund manager working to diversify the fund on their behalf. When it comes to crowdfunding, that job will fall on their shoulders—for better or worse.
  • Do You Value Performance History? Private equity funds have been around for more than half a century. Crowdfunding has been around for less than a decade. Determine how comfortable you are investing in next-gen opportunities.
  • Do You Prefer Personal Support? Because crowdfunding platforms are based online, you may not receive the personal support provided by a traditional private equity team, which will commonly walk you through the investment and/or accreditation process.

Senior Housing has been outperforming other asset classes of commercial real estate for a decade, and with demographics showing a huge boom of seniors still on the way, this is still a strong market in which to invest. Both private equity funds like SeniorLivingFund.com and crowdfunding platforms like CrowdStreet offer numerous opportunities to invest in the sector. Visit their sites to learn more.

(Video) How this equity crowdfunding platform is helping entrepreneurs raise money through angel investors

About the Writer:
Dan Brewer is Chief Fund Manager of Senior Living Fund, a private equity company investing in quality senior housing communities nationwide. Dan has nearly 25 years of business development and real estate investment experience, including 15 years in commercial real estate (CRE), and is a frequent speaker and panelist at industry conferences throughout the country. He is passionate about the social implications of aging and bringing senior housing to the forefront of the impact investing sector.

Healthcare Business Today is a leading online publication that covers the business of healthcare. Our stories are written from those who are entrenched in this field and helping to shape the future of this industry. Healthcare Business Today offers readers access to fresh developments in health, medicine, science, and technology as well as the latest in patient news, with an emphasis on how these developments affect our lives.

(Video) How Equity Deals Will Be Capitalized Post-COVID: Crowdfunding, Family Offices, Private Equity

(Video) Assisted Living Homes: 5+ Reasons to Start Investing (2022)

FAQs

What is the best thing to invest in? ›

12 best investments right now
  • High-yield savings accounts.
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27 Sept 2022

Why private equity is the best? ›

Private equity investors work with portfolio companies over the long-run, often 5-8 years. Hedge funds investments can be as short as a few weeks. So private equity teaches you the art of long-term view. Private equity also gives you the ability to work closely with the company over an extended period of time.

Where should I invest to get the best return? ›

Best short-term investment options in India
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Does private equity outperform the market? ›

According to the McKinsey Private Markets Report, in 2021, private equity was the highest performing asset class in the private markets for the fifth consecutive year. Furthermore, private equity firms boast of low volatility and returns uncorrelated with the broader market.

What is the safest investment with highest return? ›

Here are the best low-risk investments in October 2022:
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5 days ago

What is the best investment for 2022? ›

Overview: Best investments in 2022
  1. High-yield savings accounts. ...
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Is investing in private equity a good idea? ›

If you have significant available capital, access to potential deals, knowledge of the due diligence necessary for effective private equity investing, and a willingness to take some risks, private equity investing could be a perfect addition to your portfolio.

What is private equity in simple terms? ›

Private equity, in a nutshell, is the investment of equity capital in private companies. In a typical private equity deal, an investor buys a stake in a private company with the hope of ultimately realising an increase in the value of that stake.

Is private equity still worth it? ›

Private equity is an attractive investment option for high-net-worth individuals and institutional investors because of its potential for high returns. Private equity falls under the category of alternative asset classes.

What is the best investment for monthly income? ›

Best Monthly Income Plans You Should Consider
  • Post Office Monthly Income Scheme.
  • Long-Term Government Bonds.
  • Corporate Deposits.
  • Monthly Income Plans.
  • Pradhan Mantri Vaya Vandana Yojana.
  • Life Insurance Plus Saving.
  • Systematic Withdrawal Plans.
  • Equity Share Dividends.
22 Jul 2022

Where can I put my money to earn the most interest? ›

If you want a safe place to park extra cash that offers a higher yield than a traditional checking or savings account, consider a money market account. Money market accounts are like savings accounts, but they typically pay more interest and may offer a limited number of checks and debit-card transactions per month.

Which investment is best for long term? ›

Long term investments offer several advantages. The compound interest like fixed deposits in a bank and are more tax efficient like certain mutual fund investments.
...
8 Good Long Term Saving Options for 2022
  • PPF and EPF. ...
  • Stocks. ...
  • Mutual funds. ...
  • Real Estate. ...
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  • Equity funds.

Is private equity High risk? ›

Overall, the risk profile of private equity investment is higher than that of other asset classes, but the returns have the potential to be notably higher. For investors with the funds and the risk tolerance, private equity can be a lucrative investment for a portion of a portfolio.

Is private equity better than public equity? ›

Private equity investments are available only to high net worth and institutional investors, whereas investors of all types can own public equity. Private equity can generate greater returns, but comes with unique risks, including illiquidity, high management fees, and long holding periods.

Is private equity better than public? ›

They have significant differences in terms of liquidity and risk, and most institutional investors consider private equity a higher-risk/higher-return option than public stocks.

Where should seniors put their money? ›

What is the safest investment for seniors? Treasury bills, notes, bonds, and TIPS are some of the safest options. While the typical interest rate for these funds will be lower than those of other investments, they come with very little risk.

What is a good asset allocation for a 65 year old? ›

For most retirees, investment advisors recommend low-risk asset allocations around the following proportions: Age 65 – 70: 40% – 50% of your portfolio. Age 70 – 75: 50% – 60% of your portfolio. Age 75+: 60% – 70% of your portfolio, with an emphasis on cash-like products like certificates of deposit.

What is the #1 safest investment? ›

For example, certificates of deposit (CDs), money market accounts, municipal bonds and Treasury Inflation-Protected Securities (TIPS) are among the safest types of investments. Certificates of deposit involve giving money to a bank that then returns it with interest after a certain period of time.

What should I invest in first? ›

Best investments for beginners
  • High-yield savings accounts. This can be one of the simplest ways to boost the return on your money above what you're earning in a typical checking account. ...
  • Certificates of deposit (CDs) ...
  • 401(k) or another workplace retirement plan. ...
  • Mutual funds. ...
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  • Individual stocks.
18 Jul 2022

Where should I invest 1000 right now? ›

The Best Ways to Invest $1,000 Right Now
  • Stocks & ETFs. ...
  • Use a Robo-Advisor. ...
  • Chip Away at High-Interest Debt. ...
  • Use Real Estate Crowdfunding Sites. ...
  • Invest in U.S. Treasury Securities. ...
  • Use a High-Yield Savings Account. ...
  • Consider Alternative Assets. ...
  • Invest In New Skills.
28 Sept 2022

What is the best investment for beginners? ›

The best investments for beginners
  • 401(k) or employer retirement plan.
  • A robo-advisor.
  • Target-date mutual fund.
  • Index funds.
  • Exchange-traded funds (ETFs)
  • Investment apps.

What is the main disadvantage of private equity investment? ›

Disadvantages of Private Equity

With private equity, you get much more money, but usually have to give up a much larger share of the business. Private equity firms often demand a majority stake, and sometimes you'll be left with little or nothing of your ownership.

How much money do I need to invest in private equity? ›

The minimum investment in private equity funds is relatively high—typically $25 million, although some are as low as $250,000. Investors should plan to hold their private equity investment for at least 10 years.

What percentage of private equity investments fail? ›

Looking at bottom-quartile funds, he found that 75 percent had failure rates of 35 percent or higher. The average is around 27 percent for buyout firms.

What is private equity example? ›

These firms allocate investment money from institutional investors, such as mutual funds, insurance companies, or pensions, and high-net-worth individuals. Some examples of private equity firms include Blackstone, Kohlberg Kravis Roberts & Co. (KKR), and The Carlyle Group.

How does private equity make money? ›

Private equity firms have access to multiple streams of revenue, many of those unique only to their industry. There are really only three ways that firms make money: management fees, carried interest and dividend recapitalizations.

What happens at the end of a private equity fund? ›

At the end of the life of a fund, remaining investments are liquidated. Proceeds are distributed. Limited extensions to fund term possible – usually 2 years at the discretion of the GP and then longer if a majority of investors wish it.

What is the future of private equity? ›

The private markets are expected to grow to about $12.5 trillion in 2025 from $7.2 trillion in 2020, according to Morgan Stanley. Buyouts, growth equity and venture capital account for about 69% of the industry, the investment bank said.

What is the average return on private equity? ›

The study finds that private equity produced a significant 4.1% annualized excess return over public equity. We test for any diminution of excess return over time and find no evidence of private equity and public stock return convergence.

How fast is private equity growing? ›

Private market assets under management (AUM) grew by 10 percent in 2019, and $4 trillion in the past decade, an increase of 170 percent (Exhibit 1), while the number of active private equity (PE) firms has more than doubled and the number of US sponsor-backed companies has increased by 60 percent.

Which is best monthly income scheme for senior citizens? ›

Pradhan Mantri Vaya Vandana Yojana (PMVVV)

Launched in 2017, Pradhan Mantri Vaya Vandana Yojana (PMVVY) is an investment scheme that offers regular income to senior citizens and retirees. Individuals above 60 years of age can invest in this scheme.

Which is the best investment plan for 5 years? ›

Take a look:
  • Savings Account. It is one of the best and safest idea to secure your money and earn from the same as well. ...
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  • Recurring Deposits (Rds) ...
  • 5-Yrs National Savings Certificate (NSC) ...
  • Monthly Income Schemes (MIPs)

Where should I invest my lumpsum for monthly income? ›

Annuity: Indian insurance companies offer annuity plans that offer a regular income at lower risk. You can use this as a retirement strategy by making a lump sum investment to earn income at fixed intervals.

How much money can you put in a bank without questions? ›

The Law Behind Bank Deposits Over $10,000

The Bank Secrecy Act is officially called the Currency and Foreign Transactions Reporting Act, started in 1970. It states that banks must report any deposits (and withdrawals, for that matter) that they receive over $10,000 to the Internal Revenue Service.

Where can I park cash for inflation? ›

“Stocks can be good as a long-term inflation hedge but can suffer in the short term if inflation spikes,” Arnott says.
...
Here are our top six brokerages for free stock trading:
  • TD Ameritrade.
  • Ally Invest.
  • E*TRADE.
  • Vanguard.
  • Charles Schwab.
  • Fidelity.

Should I take my money out of the bank 2022? ›

There are a lot of better choices than holding cash in 2022. Inflation will deteriorate the value of your savings if you decide to stash your cash in a bank account. Over the long run, you'll be better off investing now, even if expected returns are lower than they've been historically.

What are 4 types of investments? ›

There are four main investment types, or asset classes, that you can choose from, each with distinct characteristics, risks and benefits.
  • Growth investments. ...
  • Shares. ...
  • Property. ...
  • Defensive investments. ...
  • Cash. ...
  • Fixed interest.

How do I invest in private equity? ›

To directly invest in private equity, you'll need to work with a private equity firm. These firms will have their own investment minimums, areas of expertise, fundraising schedules and exit strategies, so you'll need to do your research to find one that's right for you.

Who funds private equity? ›

Who can invest? A private equity fund is typically open only to accredited investors and qualified clients. Accredited investors and qualified clients include institutional investors, such as insurance companies, university endowments and pension funds, and high income and net worth individuals.

What risks are associated with equity investments? ›

What risks are associated with equity investments?
  • Credit risk: a company could be unable to pay its debt.
  • Foreign currency risk: a company's value could change because of shifts in the value of different international currencies.
  • Liquidity risk: a company could be unable to meet its short-term debt obligations.

Why do people invest in private equity? ›

Private equity can help to diversify a portfolio by mitigating both public market risk and cyclical risk. The way that the majority of investors access public markets is through index funds, which invest a proportion of capital in every stock in a particular index.

Why is private equity so popular? ›

First, it offers investors higher returns than those available in public stocks and bonds markets. Yet, to enjoy those returns, it helps to already be rich. Private equity funds are open solely to “qualified” (read: high-net-worth) individual investors and to institutions such as endowments.

What happens when private equity buys a company? ›

When a private-equity firm (PE) acquires a company, they work together with management to significantly increase EBITDA during its investment horizon. A good portfolio company can typically increase its EBITDA both organically and by acquisitions.

What returns do private equity investors expect? ›

Instead, PE investors typically target a 22% internal rate of return on their investments on average (with the vast majority of target rates of return between 20 and 25%), a return that appears to be above a CAPM-based rate.

What is private equity and how does it work? ›

Private equity firms invest the money they collect on behalf of the fund's investors, usually by taking controlling stakes in companies. The private equity firm then works with company executives to make the businesses — called portfolio companies — more valuable so they can sell them later at a profit.

What is the difference between private capital and private equity? ›

Private capital is a term that is being used more and more often to describe the crossover between capital provided by private equity (PE), venture and growth capital investors, and private wealth investment by high-net-worth individuals (HNWIs) and family offices.

Where can I put my money to earn the most interest? ›

If you want a safe place to park extra cash that offers a higher yield than a traditional checking or savings account, consider a money market account. Money market accounts are like savings accounts, but they typically pay more interest and may offer a limited number of checks and debit-card transactions per month.

What can I invest in to make money fast? ›

Here are a few of the best short-term investments to consider that still offer you some return.
  1. High-yield savings accounts. ...
  2. Short-term corporate bond funds. ...
  3. Money market accounts. ...
  4. Cash management accounts. ...
  5. Short-term U.S. government bond funds. ...
  6. No-penalty certificates of deposit. ...
  7. Treasurys. ...
  8. Money market mutual funds.
5 days ago

What is the best investment for beginners? ›

The best investments for beginners
  • 401(k) or employer retirement plan.
  • A robo-advisor.
  • Target-date mutual fund.
  • Index funds.
  • Exchange-traded funds (ETFs)
  • Investment apps.

Where should I invest 1000 right now? ›

The Best Ways to Invest $1,000 Right Now
  • Stocks & ETFs. ...
  • Use a Robo-Advisor. ...
  • Chip Away at High-Interest Debt. ...
  • Use Real Estate Crowdfunding Sites. ...
  • Invest in U.S. Treasury Securities. ...
  • Use a High-Yield Savings Account. ...
  • Consider Alternative Assets. ...
  • Invest In New Skills.
28 Sept 2022

How much money can you put in a bank without questions? ›

The Law Behind Bank Deposits Over $10,000

The Bank Secrecy Act is officially called the Currency and Foreign Transactions Reporting Act, started in 1970. It states that banks must report any deposits (and withdrawals, for that matter) that they receive over $10,000 to the Internal Revenue Service.

Where can I park cash for inflation? ›

“Stocks can be good as a long-term inflation hedge but can suffer in the short term if inflation spikes,” Arnott says.
...
Here are our top six brokerages for free stock trading:
  • TD Ameritrade.
  • Ally Invest.
  • E*TRADE.
  • Vanguard.
  • Charles Schwab.
  • Fidelity.

Should I take my money out of the bank 2022? ›

There are a lot of better choices than holding cash in 2022. Inflation will deteriorate the value of your savings if you decide to stash your cash in a bank account. Over the long run, you'll be better off investing now, even if expected returns are lower than they've been historically.

Which investment is most profitable? ›

Key Takeaway: Among the many things to invest in, stocks are my personal favorite and by far the most rewarding. The most successful investors invest in stocks because you can make better returns than with any other investment type.

How can I make $10000 fast? ›

24 Ways to Make $10,000 Fast
  1. Get a New Bank Account. ...
  2. Open a Credit Card. ...
  3. Transfer Funds to a New Brokerage Account. ...
  4. Invest in Real Estate (Roofstock, Fundrise, etc.) ...
  5. Rent Out Your Home Space. ...
  6. Teach Your Skills Privately. ...
  7. Sell Unwanted Jewelry. ...
  8. Sell Your Stuff.
9 Aug 2022

What are 4 types of investments? ›

There are four main investment types, or asset classes, that you can choose from, each with distinct characteristics, risks and benefits.
  • Growth investments. ...
  • Shares. ...
  • Property. ...
  • Defensive investments. ...
  • Cash. ...
  • Fixed interest.

What is the Warren Buffett Rule? ›

The Buffett Rule is the basic principle that no household making over $1 million annually should pay a smaller share of their income in taxes than middle-class families pay. Warren Buffett has famously stated that he pays a lower tax rate than his secretary, but as this report documents this situation is not uncommon.

Is real estate a good investment in 2022? ›

Real estate investing can be very expensive and may feel unattainable to some potential investors. However, it remains one of the best investments to make. Rental properties can be lucrative and profitable.

What small investments make money? ›

Here are the best small investment ideas to help you grow your money:
  • Invest Spare Change with Acorns.
  • Real Estate Crowdfunding.
  • High Yield Savings Accounts.
  • Invest In Fractional Shares.
  • Robo-advisors.
  • Get a Free Stock from Webull.
  • Certificates of Deposit.
  • Invest with the Stash App.
1 Sept 2022

Where should I invest $10000 right now? ›

How To Invest $10,000
  • Open an IRA. Bolstering your retirement savings is a great use of $10,000. ...
  • Invest in Mutual Funds and ETFs. ...
  • Build a Stock Portfolio. ...
  • Invest in Bonds. ...
  • Buy Real Estate with REITs. ...
  • Prepare for healthcare costs with an HSA. ...
  • Considering Crypto? ...
  • Focus on the long-term.
22 Sept 2022

How should a beginner invest $1000? ›

How to Invest $1,000 in Stocks & More
  1. Start (or add to) a savings account. ...
  2. Invest in a 401(k) ...
  3. Invest in an IRA. ...
  4. Open a taxable brokerage account. ...
  5. Invest in ETFs. ...
  6. Use a robo-advisor. ...
  7. Invest in stocks.

Where do you put 100k? ›

How To Invest 100k: The 5 Best Ways
  1. Investing in real estate.
  2. Individual stocks investing.
  3. ETFs and mutual funds.
  4. Investing in IRAs.
  5. Peer-to-peer lending.

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2. Startup Crowdfunding: Best Practices + Q&A with the founders of Bandwagon, Utobo, & Xiggit
(Founder Institute)
3. Brookfield Business Partners: 2022 Affiliate Investor Day Replay
(Brookfield Asset Management)
4. Investing in Assisted Living Facilities with Loe Hornbuckle
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5. AIC, LLC - Self Directed IRA's And Private Equity -- A Great Match!
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6. The #1 Tip to Land High-Net-Worth Investors with AdaPia d’Errico - Episode 280
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