Post-tax Investment Returns Matter
Shielding Investment Gains from Taxes Can Super-Charge Your Returns
At a recent party, a friend boasted to a small group that his private equity investments – as well as his angel investments, and secondaries were all “killing it”. He has been averaging 20% IRRs for the last several years. Others in the conversation were impressed. I was happy for him but couldn’t help thinking he might be fooling himself. After taxes, those returns look more like 10%. It’s a mistake many investors make – and a point that is typically glossed over by those offering these investments.
At Essentia-Capital we believe post-tax returns matter and that private real estate can provide high-net-worth families and high earners a path to significantly higher returns. Investors in well-designed private real estate funds focused on multifamily, industrial and self-storage properties have often achieved 20% IRRs – but importantly, the US tax code enables investors to effectively shield the annual passive income and capital gains from taxes. This unique advantage has a profound impact on real estate investor returns both in the short-term and even more so in the longer-term.
How much do taxes hurt your returns?
Consider a $100K private equity investment that successfully doubled in 4 years (which equates to a 2X multiple on equity and a ~20% IRR). That’s before taxes. After taxes this looks like a roughly $50K gain or a more modest 1.5X multiple on the initial investment. If the gain were to be reinvested along with the initial capital and the investor were to again successfully achieve the same strong returns, then in 8 years the investors would have $300K. After taxes, this would amount to $225. Extend this to one more cycle, then in 12 years after taxes the investor would have $337K. Not bad. But had the investor instead put their initial $100K in real estate and achieved the same doubling of capital in 4 years and then doubled again in 4 years and again 4 years later – this investor would have $800K in 12 years (vs $337 from private equity).
Clearly real estate can deliver much more desirable outcomes for investors. This explains why private real estate is the asset most favored by wealthy families and savvy investors as it provides not only superior compounding returns, but also annual income (again shielded from taxes), along with protection from inflation, and generational wealth creation.
At Essentia, we believe private real estate should be a core asset in most HNW investors portfolios. In 2026, we’re looking forward to sharing new offerings that build on our long track record of success. What’s your plan?
David Scacco | Co-founder & Managing Partner | Essentia Capital Partners
This is not intended as a solicitation for funds or an investment offering. This is for information purposes only.