Having multiple investments strategies to choose from, investors can invest accordingly and receive the best return. A clear idea about the core-plus investment will give the benefits one can count. The guide has provided essential information to understand the core plus investment if you are new to the sector.
What is core plus real estate?
It refers to the property containing high-risk investments with great returns and safe investments with low returns. The definition is loose, but in simple words, a core plus property is any building or standing 10 to 20 years old but is in good condition or requires only minor maintenance.
Real estate investors expect higher returns with a good property location and slightly high elevated risk, generally 8-12%.
It is also valuable for investors who don’t want to get involved in any investment risks but desire excellent capital appreciation.
Pros of core investment:
Every coin come with two sides. And so does core plus real estate. Let’s check out the benefits of using this investment strategy.
• Consistency and stability
Consistent long-term tenants give stable income generation options.
• Growth
A high-risk property profile gives an excellent price appreciation.
• Volume
Because of the renovation option in core-plus properties, a good value is offered. No doubt, the benefit is significant, but a comparison is required to understand the risks better.
• Age
Being 10 to 20 years old, core plus properties might get some wear and tear, and thus maintenance is required. Hence investors put on some additional capital in renovating the property.
• Vacancies
When one or two tenants refuse to renew the lease, a short-term negative turn will occur to long-term issues. This will lead to a loss of income.
• Volatility
The core-plus property’s cash flow is unpredictable. Therefore, active management is an excellent requirement to minimize any income variation.
Investment can be made privately and publicly, whichever is comfortable to the investors regarding the risk profile of the core plus assets. Having an explicit knowledge of investment type is the key to success, giving better outcomes.
Investing in core-plus properties:
Investors can trust purchasing public traded shares of the properties to better understand the concept of core-plus properties. Because it sometimes becomes quite tricky to differentiate between the investment plans and choose the right one. The solution to this problem is to choose a multi-family property to pursue both the core and core-plus investments.
Investors preferring private transactions can purchase personal property, partner with a private firm and get a fractional share of quality assets.
It depends on the investors to identify the core plus strategy by evaluating the property well or reading the investment documents.
Differentiation between the core plus investments and other investment strategies:
There are commonly three well-known commercial real estate investment categories. So, let’s get the idea of each of them and know which is a better opportunity in CRE.
Core Investments:
Being the foundation of the CTE investment portfolio, core investment has low risk but high-quality assets, which gives investors consistent cash flow.
The characterization of the investments are as:
- Low leverage, like new constructions.
- Nothing major structural or operational issue.
- And high-end finishes.
Besides, core investment is typically based on a great location with full long-term occupancy. The most appropriate example is the multi-family assets.
Value add Investments:
Properties get value-added when they are situated in a good location. Minor maintenance is also acceptable to calculate the property under the value-added category. The basic principle is to purchase a property, put some funds in the renovation and bring the property to the core-plus standards.
But just as there are negatives with every positive, this type of investment increases the leverage taken to finance the property. Therefore it is perfect for those investors who like to consider moderate risk tolerance and want good capital growth.
Opportunistic investment:
The least predictable property, with the highest potential upside, the opportunistic investment gives a high level of debts and vacancy and great return after specific repair work. Ground-up development is also included as investors do not get dividends for months and years. Subject to variables, this type of investment can give the highest returns.
Private equity real estate and core Plus properties:
Another way to generate a return from the core-plus property is to indulge in private equity firms. But before getting into the partnership, investors must examine the strategy approach, fees, and method of operation.