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PassivePockets: The Passive Real Estate Investing Show
How Preferred Equity Minimizes Risk and Maximizes ROI in Real Estate With Jim Pfeifer and guest Paul Moore and Troy Zsofka
Nov 26, 2024
Join Paul Moore, a preferred equity expert, and Troy Zofka, known for his insightful analyses in real estate, as they delve into the intriguing world of preferred equity. They discuss how this investment strategy minimizes risk while maximizing returns, particularly during market turmoil. Paul and Troy debunk common misconceptions, share practical applications, and highlight the strategic importance of due diligence. Their conversation even touches on societal issues like human trafficking and the importance of ethical investing.
40:42
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Quick takeaways
- Preferred equity serves as a hybrid financing tool that reduces risk while offering potential for higher returns compared to common equity.
- In the current economic climate, preferred equity provides flexible financing solutions for real estate sponsors, allowing them to maintain favorable debt terms without refinancing.
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Understanding Preferred Equity
Preferred equity serves as a financing tool that falls between debt and common equity in the capital stack, offering a balance of risk and return for investors. It is typically paid before common equity but after traditional debt, which makes it less risky than common equity but with potentially higher returns than standard debt. Despite the general assumption that lower risk equates to lower returns, preferred equity has recently yielded higher returns than common equity in certain markets, making it an attractive option for investors looking for stability with decent upside. This hybrid nature allows investors to position themselves in a way that offers protection against losses while still capitalizing on favorable market conditions.
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Discover
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Listen to the best highlights from the podcasts you love and dive into the full episode