top of page
Boost Capital Group Logo
  • Jeff Rodriguez

How Real Estate Debt Funds Work? - Boost Capital Group

How Real Estate Debt Fund Works

Real estate debt funds are a type of investment vehicle that invests in debt securities backed by real estate. Professional investment managers often manage these funds using their expertise to select high-quality real estate debt investments that offer attractive returns.

What are Real Estate Debt Funds?

A real estate debt fund is made up of funds backed by private equity that provides loans to potential buyers of real estate or present owners of real estate assets. Investors in these funds get recurring payments for the interest paid on borrowed money as well as security, in the form of a mortgage, levied against real estate assets. These funds provide borrowers with loans for a variety of commercial and business real estate needs that are secured by senior real estate assets.

The majority of debt funds are concentrated on a certain loan strategy or investment concept. For instance, some funds will specialize in providing multifamily apartment builders with construction loans, while others may focus on funding retail and shopping facilities. Industrial, construction, hospitality/hotel, and unoccupied land are further typical loan categories.

How Do Real Estate Debt Funds Work?

How Real Estate Debt Funds Work - Real estate debt funds invest in various real estate debt securities, including senior loans, mezzanine loans, and bridge loans. Mortgage-backed securities and other debt instruments are utilized to make these investments either directly or indirectly.

The primary objective of a real estate debt fund is to generate income through interest and principal payments from the underlying real estate debt investments. In addition, the fund may also seek to generate capital gains through the sale of the underlying debt securities.

Real estate debt funds are typically managed by professional investment managers who use their expertise to select high-quality real estate debt investments. Those managers will carry out due diligence on the investments, evaluate the creditworthiness of debtors, and screen the overall performance and progress of the property through the years.

Debt Loans for Residential Projects

Debt loans are frequently utilized to fund residential projects like fix-and-flips or brand-new residential construction. Therefore, debt funds that offer these loans might be a good choice for investors wanting to support residential real estate projects.

"Fix-and-flip loans" are short-term loans used to purchase and renovate properties to resell them for profit.

Debt funds offer a variety of loan alternatives with different periods and interest rates and frequently specialize in providing finance for these kinds of projects. In addition, these loans are commonly secured by the financed property, so if the borrower defaults on the loan, the lender may seize the collateral.

The availability of debt loans from debt funds has made it simpler for investors to obtain the funding they need to complete their projects. Therefore, debt loans may be valuable for investors attempting to finance their residential real estate projects.

How Do Real Estate Debt Funds Generate Income?

Real estate debt funds offer investors the opportunity to generate income from interest on borrowed capital, with higher interest rates leading to greater returns. In the event of a default, the fund can obtain the title to the collateral used for the loan, such as a commercial building. These funds typically charge interest rates of at approximately twelve percent, which may be fixed with monthly payments required. Borrowers must also pay additional fees, which can sometimes be passed on to investors as income.

To start investing in real estate debt funds, investors need to find a suitable fund to invest in. The investments within the fund will be managed by someone else, allowing investors to sit back and collect payments. In addition, this type of investment can help diversify a portfolio, as it is relatively lower-risk and offers consistent income.

By investing in real estate debt funds, investors can hedge against potential losses from riskier investments. Before Investing, thoroughly review each fund's fees and terms to ensure it matches your investment objectives and risk tolerance. Real estate debt funds can be a valuable addition to an investment portfolio, offering a steady income stream with relatively low risk.

Benefits of Investing in Real Estate Debt Funds

Real estate debt funds can offer investors several benefits, including:


Real estate debt funds expose investors to a diversified portfolio of real estate debt investments. This can reduce overall portfolio risk and increase the stability of investment returns.

Low Volatility

Real estate debt funds are generally less volatile than other investments, such as direct property ownership or equity investments.

Predictable Cash Flows

Real estate debt funds typically generate regular interest and principal payments, which can provide investors with predictable cash flows. This can be particularly attractive for investors looking for steady income streams.

Risks of Investing in Real Estate Debt Funds

Real estate debt funds also come with some risks, including:

Default Risk

Real estate debt investments are subject to the risk of borrower default. If a borrower is unable to return their loan, the investment's value might drop or disappear entirely. However, keep in mind that loans made are secured by the real estate asset or collateral.

Liquidity Risk

Real estate debt funds are often less liquid than other investments. Therefore, it's important to know your timeline; and to understand that invested capital becomes liquid once the asset is sold or refinanced.


A great approach to diversifying your portfolio and making regular income is to invest in a real estate debt fund. These funds are secured by collateral, allowing investors to recoup some of their investment in the event of a borrower default. While equity investments may offer higher returns, debt funds provide steady monthly or quarterly payments. Additionally, real estate debt funds offer the opportunity to invest in various properties without the hassle of property management. It's important to consider all possibilities and comprehend the possible risks and benefits involved with real estate investing before making an investment in a real estate debt fund. Whatever your level of risk tolerance, there are investing techniques that can meet your requirements.

About Boost Capital Group:

Boost Capital Group is dedicated to help busy professionals and investors achieve their financial objectives through low-risk, high-growth real estate investments in high-performing markets across the United States. Our team personally evaluates each multifamily investment opportunity to ensure that it aligns with our investors' goals and offers optimal returns.

We adopt a collaborative approach to investing, forging mutually beneficial partnerships with seasoned industry experts to rejuvenate and enhance distressed and underperforming assets. Our primary focus is to generate profitable outcomes for our investors while simultaneously revitalizing communities for the greater good. We prioritize trust and transparency in our dealings with our partners and investors.

To invest in our current investment opportunities situated in top performing markets, we invite you to schedule a 1:1 investment advisory call with us. We will go through the investment process and discuss how we can provide value as you achieve your financial goals. Get started by scheduling a call with us today.


Ready to build true wealth for your family?

It all starts with passive income. Apply to join the Boost Capital Group Investor Club.

bottom of page