Investment Strategies in "Real Estateā€


Strategies in real estate investing can be classified into the following styles:

  • Core
  • Core plus
  • Value added
  • Opportunistic

The strategies regarding type of property to invest in are further elaborated, since this is an important consideration when choosing properties for investment.

  1. Core Properties

These are the most liquid, most developed, least leveraged and most recognizable properties in real estate portfolio. These properties have the greatest amount of liquidity but still are not sold quickly relative to traditional investments. Core properties tend to be held for a long period of time to take full advantage of the lease and rental cash flows that they provide. Most of their returns come from the cash flows instead of value appreciation, and relatively little leverage is applied.

Thus, core  properties have following features:

  • Fully developed(usually)
  • To be held long term
  • Regular Cash flows generating
  • Limited appreciation
  • More Liquid
  • Non- leveraged (or less leveraged)

2.Core-Plus Properties

Core-plus strategy assets occupy the next rung in the ladder. Since they fall in between core and value-added properties, core-plus assets may share many of the same characteristics with core assets with one or more  exceptions that create added risk. Some examples of those exceptions might include the age or the asset, a dip in tenant credit or less than a fantastic location.

3.Value-Added properties

These properties tend to require a subspecialty within the real estate market to manage well and can involve repositioning, renovation, and redevelopment of existing properties. Relative to core properties, these properties tend to produce less income and rely more on property appreciation to generate the total return. These properties can also include new properties that might otherwise be core properties except that they are not fully leased, such as a new apartment complex or a new shopping center. A value-added property could also be an existing property that needs a new strategy like a facelift, new tenants, or a new marketing campaign. These properties tend to use more leverage and generate a total return from both capital appreciation and income. Examples are: hotels, resorts, assisted care living, low-income housing, outlet malls, hospitals, and the like. Thus value-added Properties have following features :

  • Sub-specialty Within real estate market
  • Examples: Hotels, resorts. Assisted care living, low-income housing, outlet malls, hospitals
  • Needed to be managed well
  • Regular rentals flows generating, but less rent
  • Rely on appreciation also
  • Repositioning, renovation, and redevelopment of existing properties often needed to enter this category
  • Less Liquid
  • More leveraged

 

4.Opportunistic Properties

These properties are taken with the basic aim of capital appreciation. Often, opportunistic real estate is accessed through real estate opportunity funds, something called private equity real estate (PERE). PERE funds invest in real estate with a high risk and return profile, particulary those properties that require extensive development or are turn- around  opportunities .

Disclaimer: The article contains data collected from various sources & the use of same is at readers discretion.