When it comes to real estate strategies, there are a wide range of risks that need to be considered. There are four common strategies that investors rely upon. The following guide is here to give real estate investors all of the tools that they need to make the most informed decisions possible.
1. Core Assets
If the investor is considering the downtown area of a larger market, core assets are a major part of the equation. While the cash flows are not going to be massive in these areas, investors will have access to new tenants on a consistent basis. These assets are at their most valuable during market downturns.
These purchases provide a great deal of value over the long haul as well. They are the assets that offer the most consistent return. These assets are geared towards the investor that is looking to buy and hold. Core assets are a key part of any consistent real estate investment strategy.
When it comes to leverage, there is no way for an investor to receive more than 50 percent of the asset’s value. There is no way to overcome this fact. It is merely a function of the investor topping out the amount of money that they can receive when it comes to their monthly rent prices.
2. Core Plus
These types of properties tend to be located outside of the downtown region in most instances. Maybe these properties are not located directly in the heart of the downtown district but perhaps they are in an area that has historical importance. The yield on these properties is often higher than the yield for core assets as well.
The tenants that are attracted to these assets will have good credit. However, they are not going to have the same level of credit worthiness as those who are attracted to core assets. There is often a great deal of uncertainty. Landlords cannot rely on the same tenants to continuously renew their leases.
Real estate investors can add extra debt onto these properties. However, it is important to remember that these properties also tend to be fairly conservative. The asset value is going to top out somewhere around 65 percent and this is something that would be investors are definitely going to want to bear in mind.
3. Value Add
Simply put, these are properties that allow real estate investors to try and find the best values. Let’s say that there is a local retail plaza that has recently lost one of their most crucial clients. A value add investor will look to swoop in and take the place of this anchor tenant before anyone else has a chance to snag the space.
These real estate investors do not invest blindly, though. It is about more than simply locating a good deal. The investor will also have a long term plan for the location. They are usually looking for an opportunity to take a building from point A to point B.
When it comes to the leverage aspect of the equation, this is where a real estate investor will have the chance to get a little more thoughtful. These are the sorts of investments that truly encourage investor creativity. The top real estate investors are able to receive at least 80 percent of the asset’s total value.
These investments are also known as “distressed”. In some cases, these properties are purchased by opportunistic investors and in other instances, developers are in the process of building new retail locations or apartment buildings. Investments of this nature are more risky in nature but they also offer investors the chance to maximize their return.
Many of the strategies that are used by investors in the value add realm still apply here. Financing is also much tougher to come by for investors who are looking to take on opportunistic properties, so bear this in mind.
These properties cannot be leveraged in most instances. Real estate investors often find that no debt can be added to the properties while they are in their current state. Investors who are looking to make the most out of these properties must have a strong level of knowledge when it comes to the market in question.