What is a Preferred Equity Investment?
In a preferred equity investment, the investor is considered an equity partner and therefore benefits from a fixed rate of return.
For example, suppose that an investor decides to partner with an individual who is interested in purchasing a property worth $1 million. Also, suppose that the investor asks for a fixed preferred equity return of 30%. As an equity partner, the investor is able to generate 30% of the profit, or $300,000.
Although a preferred equity investment has reduced risks for an investor, they are limited to a specific profit. Additionally, the investor has no control over the property.