Key Takeaways
- Preferred Equity Overview: Preferred equity in real estate investing offers various advantages, including improved cash flow and risk mitigation.
- Distinguishing Factors: Not all preferred equity is the same; there are distinctions between “soft” and “hard” preferred equity.
- Characteristics of Soft and Hard Preferred Equity:
Soft Preferred Equity: Offers potentially higher returns but involves higher risk. It may suit investors seeking regular income and willing to tolerate increased risk.
Hard Preferred Equity: Provides greater stability and capital preservation. It’s preferable for investors prioritizing stability and seeking a more secure investment option.
- Considerations for Selection:
Investment Goals: Choosing between soft and hard preferred equity depends on your goals and risk tolerance.
Income vs. Stability: Soft equity for regular income, hard equity for stability and capital preservation.
Investment Horizon: Soft equity may require a longer investment horizon, while hard equity offers more flexibility in exit timing.
Risk Assessment: Soft equity is riskier due to its subordinated position, while hard equity offers higher security.
